Buyer Of December $1,800 Gold Calls Back For Second Day In A Row, Gold Options Market Approaching Talebian "Fat-Tails" Proportions
Courtesy of FMX Connect, which has shared this premium subscriber update with Zero Hedge readers.
Summary: April Gold settled at $1332.10 per troy ounce, a loss of $8.20 for the day. Volatility was softer across the board despite buying in puts and calls in June and December respectively.
Analysis: The day started with December volatility being offered in risk reversal form. Volatility continued to soften through the front months until late morning when the December 1800 C buyer resurfaced (ZH: And if the rumor of who the buyer is ends up being true, this will be a doozy...). Iron butterflies are synthetically offered as dealers offer straddles and funds buy wings.
Commentary: The fat-tailed aspect of gold options is approaching Nassim Taleb proportions, especially in December. Calls between the 1800 and 2000 strike area are constantly bought. Puts from June on back with a value under $5 are also consistently bought. Meanwhile you can buy all the 1400 calls in any month you want at any time. Taken together this can be translated as “We’re not moving anytime soon but if we do we aren’t stopping.” We reiterate our statement that volatility will firm up if we settle below 1325 or above 1346.
Dealers are definitely not playing from the bull side. This may be from direct producer hedging layoff, or long OTC liquidation that they are flow trading around. They buy puts and sell straddles without hesitation, but almost never participate on the sell-side of wing calls in the Z11 1800 to 2000 area. There just are no natural sellers of tails anymore, and the result is Comex members and marketmaker firms have most of the shorts in them. If Gold were to go to $2,000 it could be lights out for most of the Comex community. Open interest in these 2 strikes is a staggering 34,000 contracts. That is 340,000 equivalent to you GLD types.
- Z 1800 C trds 12.20-12.80 2000x (Comex)
- Z 12 800/900 PS trds >1000x (OTC)
- M 1050 P trds 2.20 1000x (Globex)
ATM Volatility Curve:
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