FMX | Connect (Reported 10/07/2011)
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 $1,635.80 per troy ounce, a loss of $17.40 for the day.
Market Recap:
Today’s markets saw improved U.S. September payrolls and Fitch downgrade Spain and Italy, yet gold was nonplussed. After drifting close to the top of its trading range overnight Gold sold off during the day, finishing at a loss of just over $17.
Range-bound trading makes for calmer markets, and volatility continued to trend lower on Friday, led by November and December. Back-month volatility remains resilient in comparison, and providers a strong indication of just how large the divide is between short-term and long-term expectation for the metal. While options were sold on the day, speculative buying interest helped call skew outperform the puts. Turning to December options, one will notice they have less than 6 weeks until expiration. We expect some intense speculative liquidation if a major move fails to materialize in the near future.
Directional Commentary:
Options: There was not much of a departure from Thursday in today’s options activity. Volatility was lower and markedly more in the front months, while fences tiptoed toward calls. This behavior is indicative of a range-bound market, and doesn’t tell us much other than the fact that volatility will continue to contract if gold doesn’t break out of it. Long-term speculative sentiment is another story. Conclusion: Neutral/Range-Bound
Technical: Yesterday, we said gold was likely to test the top of the trading range before ultimately consolidating farther. Gold traded higher overnight and within $12 of the top of the range (1585-1680) before breaking down and finishing lower. The technical momentum remains with the bulls and we would be looking for a settlement above 1750 to initiate the reversal. Before that happens, we expect gold will retest the 200-day moving at 1538, with declining open interest and weakening oscillators driving further consolidation. We will be looking for settlements above and below 1680 and 1580 to signify gold’s exit from the trading range, but we think the price trend is lower overall. Conclusion: Bearish
Active Options
X 1780 C
Z 1600 P, Z 1780 C
G 1900 C
ATM Volatility Curve:
As of 1:30 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| X11 | 1635 | 84 | 88 |
| Z11 | 1635 | 140 | 144 |
| F12 | 1640 | 191 | 195 |
| G12 | 1640 | 227 | 231 |
| H12 | 1640 | 255 | 259 |
| J12 | 1640 | 283 | 287 |
| K12 | 1640 | 307 | 311 |
| M12 | 1640 | 329 | 333 |
| N12 | 1645 | 352 | 356 |
| Q12 | 1645 | 372 | 376 |
| U12 | 1645 | 391 | 395 |
| V12 | 1645 | 407 | 411 |
| X12 | 1645 | 424 | 428 |
| Z12 | 1645 | 443 | 447 |
As of 1:30 P.M.
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