From FMX Connect
Gold settled at $1495.80 per troy ounce, a gain of $15.80 for the day.
Calls were bid on the back of an overnight rally and a size buyer of the
December 1600 Call.
market was called to open $13 higher today, entering back into the meat
of the trading range for the last two weeks. One would think that this
retracement of a down move would be accompanied by a retracement of the
volatility but we’ve come to learn from this market that skew and its
implications are more volatile than volatility itself. Volatility should
have been lower today. Calls should have been slammed today. Having
attained break-even for the day, one wouldn’t expect back-month options
to be of interest when the gamma lies with the shorter-dated months. If
you thought any of those things you would be wrong. Here’s what
happened: The market opened at 1493 and a buyer of the June 1500 Call
came in, purchasing approximately 1000 lots. The market absorbed the
balance as there is plenty of two-way business at the strike.
Subsequently, a buyer surfaced in the December 1600 Call. The MO of the
buyer was very similar to the MO of the August 1600 Call buyer we saw
two months ago. As a quick review, between 10,000 and 15,000 August 1600
Calls were bought over the course of roughly a week and afterwards the
market went to 1570. Today, 4,000 of the December 1600 Calls traded and
it was this option that single-handedly changed the term structure of
volatility. By the end of the day the front months were down, the back
months were up and October served as the fulcrum (see chart below).
is this buyer? We don’t know. Its most likely a fund or a dealing bank
executing an order for a fund. We can’t tell you the market is
definitely going to go higher from here but we can tell you that if it
does volatility will firm up.
Directional analysis via options can be summed up very briefly. The options say don’t be short the market.
analysis: We ventured back into the range we discussed before. We’re
fairly neutral between here and 1520. We’d be tempted to get long above
1500 because of the psychological significance. There is nothing
technically that bolsters the options case except maybe that yesterday’s
sell-off stopped just above the 50-day Moving Average. It’s possible
the downside momentum is closed off; we just don’t see the upside yet.
M 1500 C
V 1500 Straddle
Z 1600 C
ATM Volatility Curve:
As of 4:00 P.M.
***From NYMEX Settlement
End of Day Straddles
As of 4:00 P.M.