FMX | Connect (Reported 10/19/2011)
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 $1,647.00 per troy ounce, a loss of $5.80 for the day.
Market Recap:
Gold ambled lower on Tuesday, finding little support in new developments of Europe and reports that the ESFS’s assets may be levered to 2 trillion euros. Similarly, U.S. housing starts, the CPI and Federal Reserve Beige Book failed to convince investors to take on additional risk. Gold traded on its daily high overnight and trended solidly lower during the day. Consequently, volatility remained firm and put trading was dynamic, with the possibility of a technical breakdown bringing speculators into the market. Puts and put spreads were purchased from December through June, including both the December 1550/February 1400 Calendar Put Spread and the June 2012 1300/1200 Put spread. Calls were also offered, with November and December hardest hit. November options expiration is only a week away.
Directional Commentary:
Options: We saw a continuation of yesterday’s options activity today. Volatility and puts were bid during the sell-off, while short-dated calls were offered. Options behavior is pricing in fear of a sharp sell-off and weak expectations of rallies. We expect volatility and puts will continue to be bid during a sell-off and would start looking for a bottom if this pattern fails to materialize. Conclusion: Bearish
Technical: December Gold settled only slightly lower on the day, but the near-term trend remains extremely bearish. Yesterday we noted that Gold broke through the bottom trend line of the rising wedge the rising wedge we have discussed but that we did not complete confirmation in the trading volumes. Based on today’s behavior, we may see that volume spike on the next leg lower. After retracing much of yesterday’s move gold failed to reenter the wedge and settled below the 100-day moving average once again. Our slow stochastic indicator also shows that 14-day historical volatility has crossed below the 3-day historical volatility, something we have seen ahead of large sell-offs. One can see this for himself on the below graph, the last time this crossover happened was September 7th and gold was trading 1870. It sold off $250 over the next 3 weeks. Our first primary target to the downside is 1600, and from there we would look for Gold to retest the September 26th low of 1535. If gold trades and settles above $1705, we would consider the possibility of a reversal or short-covering rally to 1750. For the moment however, our technical take is overwhelmingly bearish. Conclusion: Bearish
Active Options
X 1650 C, X 1750 C
X 1600 P
Z 1800 C
Z 1550/ G 1400 Put Spread
M 1300/1200 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 | 1647 | 45 | 49 |
| Z11 | 1647 | 105 | 109 |
| F12 | 1648.9 | 151 | 155 |
| G12 | 1648.9 | 184 | 188 |
| H12 | 1650.5 | 211 | 215 |
| J12 | 1650.5 | 240 | 244 |
| K12 | 1652.1 | 263 | 267 |
| M12 | 1652.1 | 284 | 288 |
| N12 | 1653.7 | 307 | 311 |
| Q12 | 1653.7 | 328 | 332 |
| U12 | 1655.5 | 349 | 353 |
| V12 | 1655.5 | 366 | 370 |
| X12 | 1657.6 | 382 | 386 |
| Z12 | 1657.6 | 400 | 404 |
As of 1:30 P.M.
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