FMX | Connect (Reported 10/21/2011)
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 $1,636.10 per troy ounce, a gain of $23.20 for the day.
Market Recap:
Gold bounced from yesterday’s low, trading higher with most of the commodity sector. Coffee futures, for instance, rallied on news that European finance ministers would be up all weekend scrambling to put the details of a new rescue plan together. The euro was up strongly on the day, demonstrating increased investor confidence. Nonetheless, we can’t help but point out how fickle this market has reacted to European news of late and would like to see some more details emerge before reaching a stronger assessment.
After failing to break support near 1600 yesterday, December Gold futures rallied higher, briefly testing 1650 before settling at 1636.10. Buying interest this morning initially pushed the market higher, but found plenty of selling as it approached the mid 1600s. For example, there was a large buyer of the December 1810 Call on Globex this morning and he found plenty of options liquidity. Calls and straddles were heavily offered on the day, bringing volatility in across the term structure.
Directional Commentary:
Options: Despite the rally, options tenor is still bearish. Calls and straddles were sold, and put skew remained firm. Options activity is pricing in fear of a continuing sell-off and weak expectations of rallies. We expect volatility and puts will be bid during a sell-off and would start looking for a bottom if this pattern fails to materialize. Conclusion: Bearish
Technical: Gold retraced from yesterday’s lows, but on lighter volumes, with early estimates showing close to December 120,000 futures trading today compared to closer to 190,000 yesterday. After trading just shy of 1650 on the high gold finished closer to 1535, settling beneath the bottom of the rising wedge we have identified, the 200-day moving average, and yesterday’s high. From a technical standpoint we remain bearish, 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 1650 C, X 1625 P
Z 1500 P
Z 1645 C, Z 1810 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 | 35 | 39 |
| Z11 | 1635 | 100 | 104 |
| F12 | 1640 | 148 | 152 |
| G12 | 1640 | 181 | 185 |
| H12 | 1640 | 209 | 213 |
| J12 | 1640 | 238 | 242 |
| K12 | 1640 | 261 | 265 |
| M12 | 1640 | 283 | 287 |
| N12 | 1645 | 306 | 310 |
| Q12 | 1645 | 325 | 329 |
| U12 | 1645 | 347 | 351 |
| V12 | 1645 | 364 | 368 |
| X12 | 1645 | 380 | 384 |
| Z12 | 1645 | 397 | 401 |
As of 1:30 P.M.
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