Gold Market Commentary: Buyer Of 2,000 December 1,800 Calls Emerges

Tyler Durden's picture

From FMX Connect

Summary
April Gold settled at $1343.00 per 100 troy ounces, a gain of $5.80 for the day, after swinging from $8.00 up to $7.00 down and back. Volatility was unchanged in the backs and lower in the fronts.  Call Skew and Call Tails increased.
 
Active Options
J 1250 P trds 7.5 with futures 1000x
Z 1800 C trds 13.5-14 2000x
J 1500 C trd 1.70-2.20 1500x
 
Analysis: Skew firmed up today with calls being bought in December and August. Puts were sold in April, June, August and October. Volatility was roughly unchanged on the day but there is a definite change in tenor in risk reversal trading. This was in large part a reaction to a fund buying December 1800 Cs live, approx. 2000 times. Moving forward, nothing about today’s action gives a directional hint except that December calls are being bought once again.
 
Commentary: The market opened very strong and then washed out, looking like a trend day lower. The bounce through unchanged came on the back of the December call buying. Our guess is that call buyer was also positioning himself in futures. Whether he’s right or not, we don’t know. Right now we are sticking to our guns and don’t expect to see volatility pop until we settle above 1346 or below 1325.

ATM Volatility Curve:

http://www.fmxconnect.com/fmxmetalsconnect/image.axd?picture=WindowsLiveWriter/AfternoonGoldFixFebruary312011/45D54B2F/image.png

Volatility Smile:

http://www.fmxconnect.com/fmxmetalsconnect/image.axd?picture=WindowsLiveWriter/AfternoonGoldFixFebruary312011/0E8EC3F4/image.png