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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.
Active Options
- 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:
Volatility Smile:
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Cool, but fake:
http://www.youtube.com/watch?v=h5s78wr0UF0&feature=related
Oh bummer. I was kinda hoping the UFO's were here. Maybe they would buy our treasuries
"Maybe they would buy our treasuries"
Why? The FED seems to like them...a lot. I read somewhere that the FED holdings of UST's has now exceeded Chinas holdings!
Maybe they could invite the Bernank over for dinner...
I think you're right. Too bad, I was looking to get a space ride.
UFO's bullish if you ask Harry... they came to earth to buy AAPL. Word is getting out.
double exposure
Silver = Carlos Slim?
Nice chart kokoro, thanks!
Hugo Salinas?
Senate just repealed the 1099 tax form law in Obamacare for $600 purchases from vendors. Good news for coin buyers and sellers. Bad news for fascists who love complicated tax codes and inflation that fucks over normal people.
Unbelievable! A rational decision from our supposed representatives.
Maybe they were afraid of ramping prices as the date for the law coming into effect approached?
The buyer is the same person who bought 3000 july 55 calls on AMEX PAAS.
So investors believe the price of paper gold will rise with inflation.
I think the article is implying that the price of gold will rise dramatically very shortly. It takes big money (big money tends to be smart money) to step up to the plate like that...the time frame is what you should really be concerned with.
1800 by December 2011
So either someone knows an event is about to take place (like the mysterious PUT buyer on Airlines before 9/11)...or someone is expecting inflation to grab hold real quicl
December's a long ways away. Weren't those puts made just days prior to 9-11?
I don't remember. I know the SEC destroyed alot of the information regarding the trades though...
And December is a long way away which is why this is unusual. Someone probably knows something that all of us pions dont.
Check it out:
http://911research.wtc7.net/sept11/docs/SavagePx_CallRatio.jpg
http://911research.wtc7.net/sept11/stockputs.html
Big dumb money doesn't stay big for very long
Gold has been and will be the ultimate wealth preserver. Even the Ultra Conservative Northweatern Mutual Ins Company AND the Texas Employees Retirement Fund loaded up on several hundred Millions worth.
Who could the buyer be? Well, if you are a big buyer between now and Dec, you know that you'll move the price. So you buy Calls now to enable you to continue your buying once you've already driven up the price. So, who has the $$ to drive the price that high? Possibly Russia or India, who both want gold, but more likely China. Think about it, China buys cheap Calls now, buys 1,000 tons at prices ranging up to $1800/oz, then buys the remaining amount through Comex. Even if they force cash settlement (which they will) they will) they turn around and buy physical at $1800, because they are getting the spot prices. Either that or Gonzalo Lira is all in on his hyperinflation by EOY 2011 ;-)
I'll take this opportunity to point out that those who think the metals markets are not manipulated need to read the above article and comments again. The entire exercise reeks of manipulation, much of it worthy of any GS or JPM.
The entire exercise shows what's wrong with the majority of all markets, not just the gold market in particular. Make money on what others are doing, not on what the actual fundamentals might be. Fundamentals? What's that?
Trading paper to make more paper. That's some insane crap. Lots of folks point out that the U. S. doesn't "make" anything any more, yet the same people can revel in the intricacies of shuffling paper, as if that is being productive.
And the cheapest trick of all:
Sorry for the dour mood, but the disconnects are simply astounding.
$1800 by December?
That's an eternity in these markets, hardly an "imminent" move.
Well, let war break out in the ME and you may well see some huge moves. How about that 60% move in silver in three months last year? Is that imminent enough for you?
You're getting warmer.....
December?
Pfffffffffffttttt. Forever and a day.
In my naive simplistic view, these calls represent the bet of a fundamentalist, i.e., based upon endless fiat creation, the collapsing world economy and increasing social strife due to food prices, etc., and the signs that PM manipulation is ending, it's a good bet. Me ....I'm buying out of the money LEAP options on miners. Any other suggestions on how to make this type of bet? I remind all of those referring to black swans that never read Taleb's book that he became financially independent betting on seemingly improbable events.
And somebody sold these.
Nice chart Muir!
The big buyer is probably an overleveraged and undercapitalized CIGA, and the PigMen are licking their chops, allowing him to continue to accumulate these calls until he's full up.
Then, they will pull the rug out....LOL...
My turn? okay hey you robo I am gonna give you such a titty twister.
And me and Olivia will be sittin there waitin ;-)
options are good investment tool, but they are margin plays for bigger players. hence the dispersed risk call/point volatilities. you want to make cash in these markets you'll need mega bucks.
so as fmxconnect as been indicating calls are bough to knock out other call options.
big example was a major investment bank buying up AUD calls to knock out a 0.94 binary call option. Their payout...25millionUSD!
but the gld call option at 1800 a little over ambitions.
still...the worry is you have bullish plays to knock out calls on GLD, IMO that will suck in more ETF smaller plays on the SPDR Gld. Good bet could be looking to short ETF SPDR market, if gold goes all sell. I think liquidity into the ETF market will dry up and the HFT's will short like crazy on their thin liquidity/margins. Could be a big sell off.
I'm thinking the big buyer is Pacific Investment Metals Co. (PIMCO)
Shhh. don't tell anyone....
Bonds, anyone?
gh
Loaded up on some more physical AU last week. I am betting we breakout to new highs this year 1600+.
MR. T bitches !!!!!!!!!! Imagine how much his gold chains must be worth now from the 80's... I pitty the fools who buy paper gold.......... wait a few years and you will love it when this plan come together. The AU team!
Anyone trading the AUD, a report just in from an investment bank, looking a forward projections of AUST trade performance, claiming that cyclone season will be net negative for AUST terms of trade, with 22 cyclones due to mid-april as opposed to the average 12. All aimed at the commodity export state Queensland.
thanks Diogenes
I think 2011 will be a very foggy year for gold.(p.s. I'm a gold bug, wait before to jump on)
In this post ZH talks about options market that screaming bull for the year end.
But gold has lost 7% from previous height and, if it turns toward 1260 and stays there for a while, an head and shoulder is formed.
Maybe gold is only taking a breath in this decennal bull market, but what scares me is how fast gold bugs build theories to justify this little drop.
In another post ZH talks about a big hedge fund liquidating a leveraged position.
Here http://fofoa.blogspot.com/2011/01/who-is-draining-gld.html Fofoa gives another explanation.
It's indeed interesting. He talks about wealthy people queuing to take delivery on GLD. If this is true, then the implications would be bullish for gold.
GLD indeed is an investment vehicle and speaking in metaphors, it could be a golden tram. Average joes are the passengers. If Joe get on the tram at sea level and get off at the top hill stop, he put in his poket a huge cash gain. If he get on at top hill stop and get off at sea level stop, he will suffer a loss. Wealthy people get on the tram as driver and get off at terminus. It is possible that the road to the terminus is a steep slope and then at the terminus all the passengers get off with a huge loss and the driver keeps the whole golden tram...
If this is the right scenario, it is possible to have affordable data about:
1) big hedge funds deleveraging in gold market
2) very wealthy people taking delivery on GLD?
I trust only bullshit proof data .
tnx
Washington D.C. is an affront for Tel Aviv.
Israel will prove to be the most oppressive and murderous country
and people ever on this earth. Enough is never enough.
Modus Operandi -
First they try to kill your spirit and identity. If that doesn't work
they just kill you. And they kill with impunity over and over again.
This may be an oversimplification, but tell me where I'm wrong. Let's say you've been long equities for the past six months. You've done great and now you want to stay long and are willing to buy some insurance against a fear-based collapse in the S & P. You expect QE3 to manifest in more exported inflation as the Muslim Brotherhood expands its footprint. What would you do? You'd buy these gold calls and stay long for the ride.
There's only one problem with the plan. It's paper-based, so the system has to hold for you to redeem. Don't confuse a gold dinar with a gold etf, or you might just be left holding dollars or SDR's, the very thing you were trying to hedge against. This doesn't solve systemic risk and you if think there's no such thing as systemic risk, then that's exactly how a confidence game functions. As long as you believe you're only a wire transfer away from trouble, then you obviously don't understand how the "reset button" will work.
Getting physical metals is not the complete solution as much as gaining an understanding that global currencies in their current form are no longer satisfying the coincidence of wants, but rather the medium (currency) is becoming representative of the message. It's the very use of the debt-based currency itself that forms the weapon against you. For example, Craig's List is probably a more valuable currency at satisfying the coincidence of needs than a new high interest "Ink" B2B credit card from J. P. Morgan/Chase ever will be, not to mention freecycle.com or twitter. They're already trading cell phone minutes in Africa as currency. Alternative solutions to the coincidence of wants is the tangible threat to the new global currency and they know it.
Benkler's book The Wealth of Networks misstates the wealth as being "within the net" when it's actually in the nodes. Alternative connections such as Google voice relayed over Twitter out of Egypt or you local penny saver swap paper (will swap firewood for chainsaw) are just two examples of the future of currency. The question is; do we all submit to the Apple paradigm of a 70/30 split as manifest in today's News Corp launch of The Daily. That makes Bernanke's 6% per annum deal look like B. J.'s Wholesale Club.
What's in your wallet? Is there anything there that's not subject to the "reset button" much less the kill switch. I can almost hear you saying, "But what about the airport and my not-Hertz brand rental car?" Exactly.
Dave Harrison
tradewithdave.com
Good stuff, Dave. Wonder if Thomas Friedman has the insight to work on a new book based on the developing paradigm for "currencies"? That would be a stunner.
Thanks for your views.
thomas friedman is too wealthy to tell the truth about anything.
The comex market makers are selling the "wings" to the funds, the funds are long these far OTM calls, so the funds say: if gold gets close to this level we're gonna take it WAY much higher, that's why the comex folks would get killed, unless they can offload the risk along the way.
COTTON
looks to me like we're almost ready to start SELLING the 180-185 OTM calls here. nice premiums available.
http://volatilitysmirk.blogspot.com