FMX | Connect (Reported 9/21/2011)
The following is a report of Gold Option’s activity in the Over-The- Counter and Exchange traded venues. Information is compiled and summarized below.
Summary
December Gold settled at $1,808.10 per troy ounce, a loss of $1.00 for the day.
Market Recap:
After two days of suspense, the Federal Open Market Committee concluded its meeting much as expected:
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.
If anything, the market may have been disappointed that the Federal Reserve didn’t go far enough, with the dollar rallying and equities selling off in the immediate aftermath. Absent further hints of a QE3, investors will return their focus to the specter of a Greek default, and the faltering economic indicators out of the U.S. Today’s existing-home sales were a welcome surprise however, rising from a seasonally-adjusted 4.67 million homes in July to 5.03 million in August.
Gold traded unchanged most of the day before selling off the in the wake of the FOMC press release this afternoon. While options were sold ahead of the new, most notable the October 1850 Call and December 1850 straddle, the full effect of the selling didn’t really resolve itself until after the meeting. Volatility was lower on the day and continued to contract going into the Globex close.
Directional Commentary:
Options: Yesterday we noted that options’ behavior was bearish for volatility, and the same trend persisted today. Straddles and calls were offered, suggesting gold is likely to continue to trend lower, and that any rally will be orderly. While option’s are not yet suggesting a high probability of a washout, the market may take on a different tenor after the expiration of October options next week. Conclusion: Bearish
Technical: Yesterday we said gold was likely to trade sideways to lower. What we should have said was gold would settle sideways, and trade $25 lower after the FOMC meeting. From here, further consolidation appears likely. Our first target to the downside is last week’s low of 1765, and we think bullion could continue all the way down to the 100-day moving average at 1630 in an extended sell-off. Looking to the upside, gold will first have to overcome resistance at the 20-day moving rally (1816) and the 1850 strike, to position itself for a sustained reversal. Conclusion: Sideways/Bearish
Active Options
V 1800 C, 1850 C
V 1750 P
Z 1850 Straddle
G 1800 C
ATM Volatility Curve:
As of 1:30 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| V11 | 1805 | 50 | 54 |
| X11 | 1810 | 121 | 125 |
| Z11 | 1810 | 161 | 165 |
| F12 | 1810 | 202 | 206 |
| G12 | 1810 | 232 | 236 |
| H12 | 1810 | 256 | 260 |
| J12 | 1810 | 283 | 287 |
| K12 | 1815 | 304 | 308 |
| M12 | 1815 | 323 | 327 |
| N12 | 1815 | 344 | 348 |
| Q12 | 1815 | 364 | 368 |
As of 1:30 P.M.
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