FMX | Connect (Reported 9/22/2011)
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 $1,741.70 per troy ounce, a loss of $66.40 for the day.
Market Recap:
There was no escaping the post-FOMC doldrums on Thursday, the helicopter (Ben) hangover, the removal of risk and relentless appreciation of long-dated U.S. treasuries. Confronted with signs of economic slowdown across the globe, including a decrease in the preliminary HSBC China manufacturing PMI from 49.9 in August to 49.4 (scores below 50 indicate contraction), investors are fleeing to safer havens. National economies are intertwined globally, and it is precisely this reason that makes a Greek default (or scenarios thereof) so terrifying for many. Absent stronger leadership, financial markets will prepare for worse to come.
Gold sold off aggressively, driven by a stronger dollar and heavy risk-off trading across the asset classes. Volumes were higher and market participants were focused on downside protection. October and November Calls at the 1800 and 1850 strikes were liquidated, while puts between the 1700 and 1600 strikes were purchased from October to February. While the December 2000 Call and December 2012 3000/4000 Call spread were both purchased in size, we suspect that the buyers were covering short and not bullish speculators. Volatility gains on the day were rather modest and in deference to the vigorous selling.
Directional Commentary:
Options: Yesterday we said that options behavior was bearish, and that the reduction and eventual expiration of October interest would increase the likelihood of a washout. Today we saw the result: Calls were liquidated, and puts were purchased across the front months on a powerful sell-off. Options sentiment remains bearish.
When the market broke 1600 on the way up the skew complexion changed. A lot of players were caught short calls and long puts. The past week’s activity saw a big change in how fences were trading and today only confirmed what we have been seeing. We are in a bear market now. The market is resorting back to a GLD-driven put skew market and this time dealers are on the bandwagon. Conclusion: Bearish
Technical: Yesterday saw the first signs of a gold breakdown in the wake of the FOMC meeting. The selling persisted today, carrying December gold all the way down to $1723 at the peak of the selling. While gold rebounded and settled very close to the 50-day moving average, it remains vulnerable to further selling. Our technical oscillators are showing that while gold may be nearing a bottom, it is still far from being undersold (especially from a weekly and monthly perspective). Our next primary target to the downside is the 100-day moving average near 1635. Looking towards the upside, a settlement above resistance at 1816 (the 20-day moving average) would signal for a possible reversal. Conclusion: Sideways/Bearish
Active Options
V 1700 P, V 1675 P, X 1600 P
V 1800 C, X 1850 C
Z 20000 C
F 1650 P
Z 12 3000/4000 Call Spread
ATM Volatility Curve:
As of 1:30 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| V11 | 1740 | 44 | 48 |
| X11 | 1740 | 120 | 124 |
| Z11 | 1740 | 160 | 164 |
| F12 | 1745 | 197 | 201 |
| G12 | 1745 | 228 | 232 |
| H12 | 1745 | 252 | 256 |
| J12 | 1745 | 279 | 283 |
| K12 | 1745 | 300 | 304 |
| M12 | 1745 | 319 | 323 |
| N12 | 1750 | 341 | 345 |
| Q12 | 1750 | 358 | 362 |
As of 1:30 P.M.
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