From FMX Connect:
FmxConnect uses several proprietary indicators to predict volatility trends. One indicator, the TrendVol actually gives directional signals as well.
Simply stated, if this week closes above 1416, there is a high likelihood of a 75 to 175 move higher in gold over the next 2 months. Although if the indicator hits, we'd expect the move to happen in a more compressed time. The signal does not usually waste time letting you know if it is right or wrong.
The indicator combines Bollinger bands, implied volatility, skewness, and historical volatility to determine speed and direction of a potential move. The actual calculations involve using these indicators to create and proprietary oscillators.
Volatility breathes (i.e. Bollinger bands) and FMX Connect believes that Gold volatility is getting ready to exhale in a big way.
The Future Trade
The futures/ ETF trade would be to buy gold above 1416 on a weekly settlement or actually before the week is up if you wish to be aggressive. The trigger technically goes off after Friday’s close if we are above 1416. Your stop loss should be placed at this week’s low.
The Options Trade
J 1500 calls, M 1450/ 1500 call spreads, Z 1500/ 1550 call spreads all offer option choices for different trading tolerances. Note that a large hedge fund has been accumulating the M 1600s, so while they may be the hot ticket, they also are priced at a premium.
We prefer to express the trade in straddles or calls that we intend to hedge higher. Here is why. When the signal hits, the market usually makes its move quickly. But sometimes it hits near a blow-off top.
And while the volatility continues to expand, we get a violent reversal. The short trade comes in if we settle above 1416 this week and then pierce 1371 next week.
For profit exit we let the market take us out with trailing stops to protect profits after we hit a 2 to 1 reward to risk ratio. As options analysts, we like to use statistical risk/reward ratios to put on trades, and that is the basis of this one. It usually gives a 3 to 1 hit when it is right. We usually start to actively take profits at 3 to 1 reward::risk. Other than that it gives you no profit taking levels.
The last 3 times this hit, we had a minimum of 75 dollar rally, and a max of 250.