FMX Gold Options Report: A Focus On The Q 1600 Call Buyer

Tyler Durden's picture

From FMX Connect


June Gold settled at $1517.10 per troy ounce, a gain of $13.60 for the day. Gold went on a rush after the Federal Open Market Committee statement and set new highs this afternoon.

Commentary & Analysis:

Today was a very complex day from an options standpoint. Rather than go through the minutae of what traded where it would be more efficient to simply create a timeline based on the FOMC statement and Bernanke’s press engagement.

In the A.M. the market opened slightly higher and volatility was offered, as is common on slightly higher calls. June calls were the most aggressively offered. Traders squared up positions, moved their calls to puts in risk reversal form and also took the opportunity to sell August volatility since it has been well bid for the last couple of days.

After 10 A.M. the August 1600 Call buyer came back to the market. Between 10-11:00 am that option was bid and bought, but offers were not lifted as they has been previously. The buyer was patient today. Volatility stabilized and drifted higher. June Calls were still being sold and nothing else was aggressively traded. From there the market moved higher and skew changed dramatically to the calls. The August 1600 Call buyer stepped up his purchasing accordingly. At this point the option term structure became efficient and everything caught a bid on the call side.

At 12:30 the FOMC released its statement. The market dipped from 1508 to 1506.60 and it looked like the report was a non-event at best, or bearish at worse. But then over the next 15 minutes the market took off and by the end of the hour was trading 1515. Gold settled higher than it ever has historically before continuing higher still in the afternoon.

From 1:30 onward options moved in lockstep with futures. For example, before 12:30 the August 1400/1600 risk reversal was worth approximately 7.5 dollars for the call hedged with August at 1507. By the end of the day that structure was worth about 8.30 at the same level, almost a dollar move in skew alone. At 2:15 the press conference began and while the Comex was closed, Globex and OTC markets remained busy. While Chairman Bernanke spoke the market traded sideways between 1519 and 1524. Unbelievably to us, during that time period, volatility softened again as longs took the pause as an opportunity to take some profits.

At approximately 2:30 the Q&A began and futures began to rotate higher again. After Bernanke was done speaking we had made a new high of 1530.70 and option volatilities did as well, with August leading the way.

You can see from looking at the curve below that August is the new darling month to own. The difference between this month and other months that catch bids is that this is not from retail buying. There is an institutional player who wants to own options. We don’t know that he is going to sell them yet or at any point but regardless, yesterday’s near pin of 1500 was a gift from heaven for this buyer, as he got to accumulate at a discount.

At about 4:00 the August 1800 Call caught a bid. Several hundred were sold by market makers and spread against the surrounding months.


A few data points:

The October 2000 C settled 4.20, went out 5/6.
The December 200 C settled 8.60, went out 10/11.
The August 1800 C settled 4.30, went out 5.5/5.8.

Active Options

M 1400 P
M 1550 C, M 1600 C
Q 1600 C
Q 1800 C

ATM Volatility Curve:

*Volatilities post-Bernanke statement

Volatility Smile:


***From NYMEX Settlement