FMX | Connect (Reported 10/20/2011)
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 $1,612.90 per troy ounce, a loss of $34.10 for the day.
Market Recap:
Gold trended lower on Thursday, trading to the low 1600s by mid-morning. The metal’s reputation as a safe haven asset has deteriorated in recent months, leading investors to divert more of their money to the Dollar against recent developments in Europe. Volatility heightened on the sell-off, and market participants clamored for puts. December puts and put spreads were bid aggressively, in one instance, packaged against February puts. Specifically, option shorts purchased the December 1450 put and sold the February 1450 put in ratio form, mitigating some of their immediate downside risk. November and December calls were also sold cheaply, with equidistant fences well bid for the puts from a historical perspective. November options expire next week.
Directional Commentary:
Options: Much like Wednesday, today’s option behavior was bearish. Front month puts and volatility outperformed while front month calls were offered cheaper and traded in smaller volumes. Options activity is pricing in fear of a continuing 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: Last week we identified a rising wedge in Gold, and predicted a sharp sell-off. Yesterday we said we were overwhelmingly bearish from a technical standpoint. Today we can say that our assessment was correct. Not only did gold sell off another $34, we also saw the higher futures trading volume we were looking for to confirm the validity of the breakout. We expect the near-term trend will continue lower still, and will be looking for Gold to test support at 1600 and 1585 before retesting the September 26th low of 1535. If gold settles above 1700 it could initiate a possible reversal, but for the moment, we think bears have the advantage. Conclusion: Bearish
Active Options
X 1600 P, X1500 P
Z 1500 P
Z/G 1450 1x2 P. spread
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 | 1615 | 45 | 49 |
| Z11 | 1615 | 108 | 112 |
| F12 | 1615 | 156 | 160 |
| G12 | 1615 | 188 | 192 |
| H12 | 1615 | 216 | 220 |
| J12 | 1615 | 245 | 249 |
| K12 | 1620 | 267 | 271 |
| M12 | 1620 | 288 | 292 |
| N12 | 1620 | 311 | 315 |
| Q12 | 1620 | 331 | 335 |
| U12 | 1620 | 352 | 356 |
| V12 | 1620 | 368 | 372 |
| X12 | 1625 | 386 | 390 |
| Z12 | 1625 | 402 | 406 |
As of 1:30 P.M.
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