FMX | Connect (Reported 10/05/2011)
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 $1,641.60 per troy ounce, a gain of $25.60 for the day.
Market Recap:
Gold and most other commodities rallied on Wednesday, encouraged by a weaker dollar and the perception that the ECB is moving closer to resolving the regional debt issues (most likely via a stronger and deeper-pocketed ESFS). A better-than-expected September payroll report from ADP also contributed to stronger sentiment.
After nearly two straight weeks of puts being bid and calls being sold, gold finally saw a departure from the trend, with back month volatility out-performing the fronts by a considerably margin. December 2012 volatility was up almost a percentage point, while November volatility was about half a vol lower and December 2011 was essentially unchanged. While bullion still remains mired in a trading range, speculators are loading up for the next big move. While opinions differ on the duration of the current down-trend, buyers are more optimistic that the rally will have resumed 6 months from now, and are spending on April-December 2012 options accordingly. Today saw large purchases of the November Calls and Call Spreads, revolving around the 1700 strike. Business in December was two-way, with both the 1725 Call and the 1450/1350 1x2 attracting interest. Fences inched back toward the calls across the term structure.
Directional Commentary:
Options: Options behavior over the past two weeks has mostly been bearish, and today saw greater reason for optimism. Not only was there buying interest in November and December calls, volatility’s move across the term structure (raising in the backs but not the fronts) is a good indication that activity is starting to pick up. This shift also implies that front month volatility will most likely come in aggressively if the trend persists. As always, one should never read too much into any single day of options behavior but options seem to be signaling a change of pace, and that gold may be getting ready to break out of its trading range. Conclusion: Neutral
Technical: Gold rallied $25 on the day, giving back the lion share of yesterday’s sell-off. Gold is currently trading in a range between the 1580 and 1680 strikes, and while we think the current trend is sideways to lower, we are looking for a settlement above or below those strikes to initiate the next leg higher or lower. The next major area of resistance to the upside is 1750, and the next primary area of support to the downside is the 200-day moving average at 1535.40. While the daily candlestick chart is not strongly bearish, we think the weekly view is more telling; in particular, declining slow stochastics and trading beneath the 20-week moving average should be major causes for concern. Another sell-off below 1600 could be severely technically damaging and gold could consolidate all the way to the mid 1200s in a pronounced move. Conclusion: Bearish
Active Options
X 1700 C, X 1750 C
Z 1775 C, Z 1825 C
Z 1450/1350 1x2 Put Spread
ATM Volatility Curve:
As of 1:30 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| X11 | 1640 | 105 | 109 |
| Z11 | 1640 | 159 | 163 |
| F12 | 1645 | 206 | 210 |
| G12 | 1645 | 239 | 243 |
| H12 | 1645 | 266 | 270 |
| J12 | 1645 | 293 | 297 |
| K12 | 1645 | 316 | 320 |
| M12 | 1645 | 338 | 342 |
| N12 | 1650 | 359 | 363 |
| Q12 | 1650 | 379 | 383 |
| U12 | 1650 | 400 | 404 |
| V12 | 1650 | 415 | 419 |
| X12 | 1650 | 431 | 435 |
| Z12 | 1650 | 450 | 454 |
As of 1:30 P.M.
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