FMX | Connect (Reported 10/14/2011)
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 $1,683.00 per troy ounce, a gain of $14.50 for the day.
Market Recap:
Gold rallied on Friday, drawing on a well-spring of European optimism to lift itself higher. The dollar index was also weaker. The afore-mentioned optimism is contingent on a productive G20 meeting early November, but member states have all ready started to hammer out the details. The ESFS has also been approved for additional funding by the EU. While it is still a little early to rate the overall efficacy of the new plan, the early response has been positive. We are curious to see how current expectations will carry over to next week.
Directional Commentary:
Options: Options temperament was essentially unchanged on Friday. Volatility contracted, and calls were offered cheaper across the term structure. While the call selling is not being accompanied by put buying, options sentiment is still somewhat bearish. Even if the market rallies, it is likely be orderly and volatility is likely to underperform. We expect volatility will be bid again during a sell-off. Conclusion: Somewhat Bearish
Technical: December gold drifted higher on Friday, but still fell short of the weekly high on Wednesday. Yesterday we noted the formation of an ascending wedge, a bearish continuation pattern, and gold remains between the two trend lines.
If gold breaks below the bottom trendline we think it will sell off sharply and test support at the 1630, 1600 and 1535. If gold can hold above the 20-day moving average and move through resistance near 1705 we think it can rally to the 1750 area, but would still council caution before buying. In addition to flatlining open interest, gold is also starting to look overbought on our daily stochatic indicator. Conclusion: Bearish
Active Options
X 1700 C, X 1625 P
Z 1700 C, Z 1800 C
J 1700 C, J 1900 C
Z12 1750 Straddle
ATM Volatility Curve:
As of 1:30 P.M.
End of Day Straddles
| | Future | Bid | Offer |
| X11 | 1683 | 53 | 57 |
| Z11 | 1683 | 104 | 108 |
| F12 | 1684.9 | 151 | 155 |
| G12 | 1684.9 | 185 | 189 |
| H12 | 1686.4 | 213 | 217 |
| J12 | 1686.4 | 244 | 248 |
| K12 | 1688.1 | 269 | 273 |
| M12 | 1688.1 | 288 | 292 |
| N12 | 1689.8 | 315 | 319 |
| Q12 | 1689.8 | 336 | 340 |
| U12 | 1691.6 | 357 | 361 |
| V12 | 1691.6 | 373 | 377 |
| X12 | 1693.9 | 389 | 393 |
| Z12 | 1693.9 | 407 | 411 |
As of 1:30 P.M.
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