FMX | Connect (Reported 9/23/2011)
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 $1,639.80 per troy ounce, a loss of $101.90 for the day.
Market Recap:
Gold prices withered on Friday, driven by a combination of FOMC disappointments, deflationary pressure and technical momentum. Volatility and put skew were heavily bid as investors scrambled for the exit. October options are due to expire Tuesday, and market participants have been systematically unwinding calls and squaring up verticals all week. Puts and put spreads were bid across the term structure, but primarily in the front months. We saw everything from large volumes of the December 1500 Put trading to a speculative purchase of the February 1050 Put. Despite the bearish sentiment, the biggest single trade of the day was a long-term bull play (or disaster hedge). Over 7,000 of the December 2012 3000/4000 Call Spreads traded.
Directional Commentary:
Options: Yesterday we said options behavior was very bearish, and today validated that sentiment. Puts were bid, calls were offered, and volatility was bid, just as one would expect in a $100 washout. Today was much more reactionary than predictive but with October expiration on Tuesday, open interest is likely to play a large role in how the market behaves for the next few days. There is significant open interest at the October 1600, 1650 and 1700 strikes, and futures may gravitate to one of those areas. Conclusion: Bearish
Technical: Yesterday we said that we were seeing signs of a gold breakdown and that our first primary target to the downside was 1635. Bullion achieved that objective today, trading to 1631.70 on the lows before settling slightly above the 50-day moving average. While we may see a gingerly rebound from the heavy selling of the past 2 days, particularly while October interest remains in play, we think further testing of the 100-day average is likely and that gold is likely to consolidate further before bringing in dip buyers. The 50-day moving average at 1744 is our first major resistance area to the upside and we would need to see a settlement above that level to negate the bear trend. Looking back towards the downside, if gold breaks below the 100-day moving average at 1634.70 we would look towards 1525, 200-day moving average and 1485, the base of the rally in July. During moves of this magnitude it is important to examine the technical charts not only on a 24-hour interval, but also from a weekly and monthly perspective. Gold can sell considerably lower without violating the long-term bull trend, and it probably will. Conclusion: Bearish
Active Options
V 1600 P, V 1650 P
V 1750 C, 1865 C
Z 1500 P
Z12 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 | 1640 | 55 | 59 |
| X11 | 1640 | 139 | 143 |
| Z11 | 1640 | 177 | 181 |
| F12 | 1640 | 213 | 217 |
| G12 | 1640 | 241 | 245 |
| H12 | 1645 | 264 | 268 |
| J12 | 1645 | 288 | 292 |
| K12 | 1645 | 307 | 311 |
| M12 | 1645 | 324 | 328 |
| N12 | 1645 | 345 | 349 |
| Q12 | 1645 | 363 | 367 |
As of 1:30 P.M.
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