FMX | Connect (Reported 10/24/2011)
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 $1,652.30 per troy ounce, a gain of $16.20 for the day.
Market Recap:
Gold rallied on Monday despite questionable progress out of Europe. Instead, the metal tracked encouraging economic data out of China (expanding manufacturing) and Japan (increased September exports). The market is expecting greater resolution on the European debt crisis after the summit Wednesday.
December Gold trended higher but very little enthusiasm carried over to option trading. Volatility languished during the rally, with November and December contracting approximately 2% on settlement, and more so in the afternoon session. Calls and straddles were offered, and then offered cheaper because of the light volumes trading. Market participants are understandably cautious; not only is Wednesday a big news day on account of the European summit, it is also November options expiration. As such, the next 48 hours present many perils to option traders.
Much like Gold, silver shares the potential for an explosive breakout. Be sure to check out Silver: Ready to Pop or Drop for our take and trend-vol indicator.
Directional Commentary:
Options: Options were heavily offered on the rally. While this behavior is not inherently bearish, it is at minimum, a warning sign that this rally has not been embraced by the market. Puts are bid when the market sells off but calls are offered when it rallies. This doesn’t look like a market that has found a bottom to us. Conclusion: Somewhat Bearish
Technical: December Gold rallied, adding to Friday’s gains but settling below the 100-day moving average and the bottom trend line of the rising wedge we identified last week. Volume was relatively light, with than 100,000 December futures contracts trading in the preliminary estimates. While there are some small signs of encouragement for bulls, particularly the potential of a stochastic crossover back towards the upside, the bear trend remains intact. CFTC Commitment of Traders is showing reduction in long positions. 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 we would look for a possible reversal, but for the moment, we think bears have the advantage. Conclusion: Bearish
Active Options
Z 1675 C, Z 1750 C
Z 1525 P
ATM Volatility Curve:
As of 1:30 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| X11 | 1650 | 21 | 25 |
| Z11 | 1650 | 89 | 93 |
| F12 | 1655 | 136 | 140 |
| G12 | 1655 | 170 | 174 |
| H12 | 1655 | 198 | 202 |
| J12 | 1655 | 227 | 231 |
| K12 | 1655 | 250 | 254 |
| M12 | 1655 | 273 | 277 |
| N12 | 1660 | 297 | 301 |
| Q12 | 1660 | 319 | 323 |
| U12 | 1660 | 341 | 345 |
| V12 | 1660 | 359 | 363 |
| X12 | 1665 | 375 | 379 |
| Z12 | 1665 | 391 | 395 |
As of 1:30 P.M.
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