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Doug Kass Calls For Gold $250 Lower: Puts Pop Before the News
Gold Options activity took a turn towards the bizarre late Friday. Between the hours of 2pm and 4pm Eastern, put buyers came out of the woodwork. We are almost certain that Doug Kass's interview on Fast Money was the sole cause of this activity. He was interviewed at 5pm. The put buying frenzy came in a full 2 hours beforehand on a Friday.
Mr. Kass runs Seabreeze Partners Mgt. and is known for timely accurate market calls in the past. Here is what he said about Gold for 2011. "Gold will drop $250.00 in a span of four weeks" The reasons for his bear stance are simply that rising interest rates will cause money to flow out of the metal as a hedge and into higher returning assets. His reasons are logical and represent a growing contingency of managers that think many economies are doing better. China, Brazil and others are raising rates to battle inflation. This would reduce demand form these countries for Gold as a hedge. We don't necessarily agree, thinking that the U.S. cannot follow their lead, the result of which just means a weaker dollar. Hence gold remains firm in dollar terms. But his track record speaks for itself.
He closed by stating "Gold will briefly touch $1050.00/ OZ. and should finish the year $150 lower than where it is today.
What we are focusing on is the option activity that occurred before his interview.
Pre Interview Put Party
The Comex floor day ends at 1:30. Friday's activity was largely uneventful during floor hours. There were some put buyers scattered in the back months and some call sellers in the mid months. Other than that trading was dominated by dealers and market makers squaring up their February positions as we head towards expiration this week.
But post floor close activity became pointed and focused on one thing, mid month put buying. Between 3,000 and 6,000 puts traded between 1:30 and 4:15 (that is GLD equiv of 30 to 60k volume). It started at the April 1000 strike, a 4 tick option. but the buying spread virally from there to June, then Dec, back to August and finally to April and March strikes. Back month put premiums expanded by 2 to 5 percent, while shorter dated options like the April 1250 strike went from a 10.50 offer to an 11.90 bid, a premium change of 10%. Yet the market was $2.00 higher when the bids came in.
Normally post Comex close, Globex order flow is driven by GLD ETF business. Retail and equity side business usually dictates volatility for this part of the day. But that wasn't the case Friday. The business came in on the commodity side first this time, and it most definitely was not retail in size or sophistication. Fast Money Fans were not the buyers.
We decided to model the market's pre to post activity to get a handle on just how big the changes in put values were.
- March 1200 From 1.40 offer to 2.00 bid
- April 1000 From .40 offer to .60 bid
- April 1100 From 1.40 offer to 2.10 bid
- April 1250 From 10.40 offer to 1190 bid
- June 1100 From 5.00 offer to 6.20 bid
- June 1200 From 22.50 offer to 24.50 bid
- Oct 1150 From 16.00 offer to 18.00 bid
- August 1280 From 46 offer to 48 bid
- Dec 1000 From 10.50 offer to 12.70 bid
Calls Were Not Invited
This only tells one side of the story. It's obvious puts were bid. What isn't is that calls were offered, because so few traded. What we really had was a large skew change with no market movement. Vix followers take note: ViX predicts nothing. ViX changes are reactionary to market movement, not predictive. But changes in skew, while not predictors of direction do tell you what will happen to the ViX if the market moves. In summary: A move lower will cause a pop in the Gold ViX. while a move higher, will almost certainly result in a sell off in volatility. Take a look at this smile, pre to post activity. it tells a simple tale: People are hedging long positions or are outright bearish. Any move lower from here will be emotional. Fear if you are long the market, and greed if you are short. Take your pick, but it won't be pretty if you are short options and Kass is right.
April Options Smile
Key: Orange represents closing market values, Blue represents post market values
Who Bought?
So where did this buying come from? We don't know. Fund managers have been talking their positions for generations. If a guy is on the cover of Barron's is telling you to buy IBM, it ain't because he's short it. Maybe he Kass was buying pre his interview. Maybe it was some friends who share his view. He twittered his opinion at 2:00 PM. Maybe it was a coincidence. Regardless, people are saying Gold will go down, and are putting money on it.
Gold Bull Despair
Most of our readers are bullish Gold. Here is our advice to those people. If you are bullish on Gold and trade options, ( Disclaimer: and have money you can afford to lose) buy hedged puts or hedged put spreads. In a rally, the hedge will offset any decrease in volatility, while naked long calls will be offered every step of the way by trapped longs. And if you buy hedged puts and we do sell off, you wont be sorry. Options exhibit Giffen Good qualities at times, and that is beginning to happen now. If the market has a strong day higher, do not expect put bids to go away, expect call offers to trickle in. That would potentially change if we breached and stayed above the 100 Day Moving Average which comes in around 1351.
Final note, keep an eye on silver spreads. They continue to come in, indicating a squeeze may be on the table despite the paper sell-off.
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You mean TVIX, right?
http://www.bloomberg.com/apps/quote?ticker=TVIX:US
Why isn't there a 50x leveraged VIX etf? I can't be bothered holding something for more than an hour anymore.
Look I can't help but being a troll. I'm back to my top calling ways now. I sold my last gold at 1370 and my last silver at 27. so this damn well better be a decent intermediate term top at least. I would love to get back into silver at 23
Here is this dumb fukk's record since September:
Sept 17th "Staring to short the market" (SP is 1125)
http://www.cnbc.com/id/39232968
Oct 1st "We're about to hit a wall" (SP is 1146)
http://www.cnbc.com/id/39463659
Nov 8th "The market has hit the TOP" (SP is 1223)
http://www.cnbc.com/id/40071629
Dec 27th "I am moving to a NET SHORT position" (SP is 1257)
http://www.cnbc.com/id/40822917
Jan 6th "In cash, waiting to make the big short trade"
Oh really Doug? You stupid lying fukk. That one was a real laugh after seeing every call for the previous three months including your NET SHORT article not a week prior, but here it is...
http://www.cnbc.com/id/40822917
Jan 13, 2011 "Commodities look attractive".....
http://www.cnbc.com/id/41056793
I guess after missing the entire short since you're "In cash and waiting to make the big short" the last I heard....
Fukking retard."
Now zerohedge Please take down this article....
thx, his calls 2009 were s... as well ...
Nothing but worthless noise ...
This ZH article is a service to the community. Why? Because it brings out the comments like yours with the whole truth. Only then can one be considered well informed and make decisions. How could the Kass comments on CNBC be countered otherwise? Thanks for your comments/facts.
If it touches those prices, you probably won't be able to find any physical. I'd be buying.
The current rating of this post (around 3 on 5) shows how idiotic the average reader of ZH who is buying Gold is.
The focus of this story was the option activity and not the call itself. Had this been a post criticising JPM on front running the Fed (a similar context) it would have been rated 5 across the board. But because the story had a drop in the price of Gold involved, the idiots got involved and "thrashed" it lower.
and your point is???
Uhh, this guy has been consistently wrong on gold and most everything else for the last two years.
Might as well be posting Cramer articles.
Just buy the dips (physical Gold and Silver),
anything else is all noise and fluff.
I don't even try to time my purchases ("BTFD"). I buy when I have extra money and the time to go to the coin shop. Has worked for me since the 1980s.
Thanks for this info, these assholes want it all for themselves. Personally I'd like my friends and neighbors to be somewhat solvent in the end. These guys are amazing how they get in your head. 1050 would break the trend. even 1150. I notice every night there is heavy buying in Asia then I wake up and we are down.
there was a post a few months back about long overnight, short during the day is very profitable. Less manipulation overseas, more suppression in US mkt hours.
If gold goes down to 1050, silver will be about 16-17... i am buying a ton at these prices
A ton of gold is mucho dinero, even at 1050.
There's got to be better ways to invest that much money.
reading comprehension FAIL
Doug K. Ass
Called for 900$ gold for 2010 and we got $1400.
If we apply his same $500 (55%) error margin, his $1050 gold for 2011, should translate into $1600.
If he's lucky, he might become as accurate a contrarian indicator as John Nadler.
A compelling reason to invest in the gold sector might be that the all in cost to mine may approach 1/6th to 1/10th the price of an ounce of gold as it had during the depression BEFORE they devalued currencies against it.
Secondly, and this is a reason I keep harping on, is that we may actually see a decline in interest rates, and that short term interest rates will turn negative as bullion lease rates go positive, ergo, that the price fix on bullion leases will fall apart.
Judging by Dougies average on his calls over the years, gold is then certain to shoot straight up on his $250 down call.
Realize this article for what it is; a last ditch attempt to talk the market down prior to option expiration. Comex and from what I understand, the $quadrillion derivitaves house of cards, can go up in flames in a moments notice - what happens when the squids blood evaporates instantly.
Which currency will you choose to hold. The media and its shills are paid to broadcast disinformation and now people recognize instantly the blatant lies being perpetrated on behalf of the wall St/Banking Cartel.
We need to reinstate Glass-Steagall and like Iceland and Ireland (should/hopefully will do) give the bad debts back to whom from whence they came...
And the MSM will eventually be held accountable for their deeds....
Gold at 250? In what? "New dollars"?
As for CNBC, don't forget the shows i.e. Crammer and Fast Money both tape BEFORE the market closes, Crammer starts to tape at 3:30 est and Fast Monsy also begins to film before the market closes, not sure exactly what time, so correlate Kass's remarks and you will see that someone saw/heard/was told what he said while market was still open!!
Inflation Watch: My baby's soy formula just increased to $13.99 from $12.06/can. That's $1.93 increase: $1.93/$12.06=16% increase. At this rate their will need to be real-world 50% inflation before the CPI passes 1.0.
screw that crap - raise him on whiskey and bacon!!
Fast Money... Mad Money.... what time is the Real Money show on??
It is on 24/7 in your Heart of Hearts. The soul knows the 'Real' from the 'Illusion'
Set up in play.
Interest rates will rise everybody will run out of gold.
Powers That Be. We are embarking on a huge wealth cycle that will lift all boats.
Bernank. I can get them out of gold and back into dollars and then we'll run so hard and fast into gold when we drop interest rates back to zero they'll run back at huge losses and we'll run out with our profits.
Welcome to the events surround the double dip.
Gold is officially schroedingers cat. Dropping like a rock while simultaneously skyrocketing. I suggest if you are out get in quick and if you get shooken out then you weren't paying attention.
Those who fail to learn the lessons of history are doomed to repeat them. One incoming wtf bomb.
http://www.youtube.com/watch?v=lLWwWsM22eY
To Tyler or Anyone Else: What is Kass's track record?
To Tyler or Anyone Else: What is Kass's track record?