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 $1,700.40 per troy ounce, a gain of $48.10 for the day.
Market Recap:
Gold surged higher on Tuesday, pushing above $1,700 an ounce for the first time in more than a month. Decreased expectations out of the EU summit helped restore the luster of gold’s safe-haven appeal, which has weathered increased scrutiny the past several weeks. U.S. Consumer Confidence also fell to a forlorn 39.8 in October from 46.4 in September. Tepid economic data and growth projections out of the U.S. have spurred predictions of additional quantities easing, which would also provide support for the metal.
Gold trended solidly higher from the U.S. open, drawing support from the confusion and diminished expectations surrounding the EU summit tomorrow. This was punctuated by the cancellation of the finance minister meeting, which in early news reports, led many investors to believe tomorrow’s discussions were abandoned entirely. The leader summit was never canceled but global markets were decidedly skittish, choosing to interpret the cancellation as a sign that participants were struggling to find a consensus. Calls, straddles and volatility were all bid during today’s rally, and futures volume picked up significantly. In addition to event risk, traders also had to contend with November options expiration tomorrow. The November 1700 Call and 1725 Call both traded heavily, as did the December 1700 Call, December 1550 Put and February 2000 Call.
Yesterday we called for a break-out in Silver; read the follow-up here: Silver Trend-Vol Alert Update
Directional Commentary:
Options: Yesterday, calls were offered during the rally. Today they were bid aggressively on top of an explosive move higher. Volatility and call skew are pricing in an increased probability of a rally, after weeks of disinterest. We will be watching closely to see if the trend in options persists tomorrow. Conclusion: Somewhat Bullish
Technical: Gold dashed higher in a dramatic turnabout, rallying more than $60 off the lows. Yesterday, we noted the stochastics crossing over should be viewed positively by the bulls, but we were surprised by the extent of today’s rally. Gold settled above 1700, and traded above 1705, positioning futures for a run to 1750-1760. While near-term momentum has turned bullish, the intermediate outlook is still tenuous. The next sell-off could prompt a rapid retesting of support at the 1600 strike. Conclusion: Somewhat Bullish
Active Options
X 1700 C, X 1725 C
X 1650 C
Z 1700 C, Z 1550 P
G 2000 C
Q 1720 Straddle
ATM Volatility Curve:
As of 1:30 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| X11 | 1700 | 17 | 21 |
| Z11 | 1700 | 95 | 99 |
| F12 | 1700 | 146 | 150 |
| G12 | 1700 | 178 | 182 |
| H12 | 1705 | 208 | 212 |
| J12 | 1705 | 238 | 242 |
| K12 | 1705 | 262 | 266 |
| M12 | 1705 | 285 | 289 |
| N12 | 1705 | 309 | 313 |
| Q12 | 1705 | 331 | 335 |
| U12 | 1710 | 354 | 358 |
| V12 | 1710 | 372 | 376 |
| X12 | 1710 | 389 | 393 |
| Z12 | 1710 | 406 | 410 |
As of 1:30 P.M.
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End Of Day Straddles
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