FMX | Connect (Reported 10/26/2011)
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 $1,723.50 per troy ounce, a gain of $23.10 for the day.
Market Recap:
Gold trended higher on Wednesday, unimpressed by developments out of the EU leader summit. Investors were instead surprised by better-than-expected September home sales and U.S. durable goods orders. As of the time of this writing, the summit has concluded, but the press statement was sparse on key metrics, including the extent of Greek haircuts and total capital banks will need to raise to meet stricter reserve requirements (it is widely expected to be at least 100 billion euros). German Chancellor Angela Merkel and French President Nicolas Sarkozy will reportedly be meeting with private sector banks tonight to discuss haircuts.
Gold rallied, infused by a fresh spate of safe-haven enthusiasm and reports on European negotiations. Calls were bid, volatility was firm, and speculators were excited about the metal’s potential to rally. Calls, Call Spreads and Calendar Spreads traded across the term structure (including hefty volume in August and December 2012), even as November options prepared for expiration. Large volumes of the December 1825 Call and February 2050 Call traded, highlighting increased investor confidence. Puts skew was lower on the day.
Directional Commentary:
Options: Option behavior was very bullish, with fences making large strides toward the calls after weeks of put favoritism. Volatility was bid, call skew blew out, and options volume for April on back was much higher than normal (these contracts are much less liquid than front months). Options are saying this rally should be taken seriously. Conclusion: Bullish
Technical: Yesterday, we said gold was positioned for a run to 1750 and today didn’t disappoint. December futures trading to 1728 on the highs and are well positioned to accomplish that objective in the next several trading sessions. The near-term trend is bullish, and open interest has tiptoed higher the past several sessions. We are looking for gold to continue its rally to 1757.70, the September 23rd high. If futures can break through resistance in that area we may see an attempt back to all-time highs of 1923.70. On the other hand, if gold fails at that level, we may see a rapid return to the mid 1600s. A settlement below 1697 would be bearish. Conclusion: Somewhat Bullish
Active Options
X 1725 C, X 1750 C
X 1700 P
Z 1725 C, Z 1825 C
G 2050 C
QZ12 1775 Straddle Spread
ATM Volatility Curve:
As of 1:30 P.M.
Volatility Smile:
***From NYMEX Settlement
End of Day Straddles
| GC | | | |
| | Future | Bid | Offer |
| Z11 | 1725 | 102 | 106 |
| F12 | 1725 | 154 | 158 |
| G12 | 1725 | 190 | 194 |
| H12 | 1725 | 220 | 224 |
| J12 | 1725 | 250 | 254 |
| K12 | 1730 | 275 | 279 |
| M12 | 1730 | 299 | 303 |
| N12 | 1730 | 325 | 329 |
| Q12 | 1730 | 347 | 351 |
| U12 | 1730 | 370 | 374 |
| V12 | 1730 | 387 | 391 |
| X12 | 1735 | 404 | 408 |
| Z12 | 1735 | 422 | 426 |
As of 1:30 P.M.
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End Of Day Straddles
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