The War Over The $1,520 Gold Pin Tomorrow - Part 3 Of "Market Manipulation: A Recipe in Three Parts"

Tyler Durden's picture

From FMX Connect, which continues its very educational and highly informative series about precious metals price manipulation and interference. Previously: Options Risk, Manipulation, And The May Silver $40 Calls: An FMX Connect Special - Parts 1 And 2

Summary: Right now there is a war in Gold options. It is between the May 1520 longs, who most likely are unhedged, and their short option counterparts, who most likely are hedged. One would think the longs intend to sell futures at some point, perhaps 1520, perhaps 1540 we do not know. It is also possible that they intend to take delivery, but that is unknowable for the moment. The shorts are probably delta hedgers and have no desire to see this market go above 1520, much less move at all.

Full report:

Overview

Price Manipulation and its cousin
“mismarked books” are as much a product of systemic dysfunction as they
are of unethical individual behavior. The 3 part series we have planned
is educational in nature and aims to outline those system-wide
imperfections at the highest level. For today we must focus on what is
shaping up to be a rare opportunity to watch a pitched battle between
major players in Gold. In short, we are interrupting your regularly
scheduled program.

Current Events: The Potential Pin in Gold Options Tommorow

Right
now there is a war in Gold options. It is between the May 1520 longs,
who most likely are unhedged, and their short option counterparts, who
most likely are hedged. One would think the longs intend to sell futures
at some point, perhaps 1520, perhaps 1540 we do not know. It is also
possible that they intend to take delivery, but that is unknowable for
the moment. The shorts are probably delta hedgers and have no desire to
see this market go above 1520, much less move at all.

The Players

  • The Longs-
    have accumulated over 5,000 lots in a two week period and we would
    assume they are bullish. They are patient dip buyers and seem to have
    little fear of the Bullion Banks that are often accused of manipulating
    PM prices lower or keeping prices range bound at expiration.

 

  • The Shorts-
    are Bullion Banks, market-making firms, locals and possibly some hedge
    funds. There is no collusion implied here. In fact, these firms are
    usually at odds with each other in terms of option open interest. The
    majority of the shorts trade options from a non-directional point of
    view. That is, they are professionals who, when short an option do not
    want the market to move either way. Conversely, when they are long an
    option, they want the market to move quickly through or away from the
    strike they own.

The Play
We
feel the Longs were betting that once the gravitational pull of the
$1500 strike was broken, that the market would move quite easily to the
strike with the next largest open interest, the $1520 strike. They may
be privy to large order flow in futures, they may have large futures
order flow, or they may simply be speculating with nothing other than
their wallets and the ability to read market behavior through price
action. They can spot a market that is lopsided in one direction when
they see it.

Snapshot: May Gold Open Interest

product

contract

type

strike

volume

open interest

OG

May-11

C

1480

598

2303

OG

May-11

P

1480

368

675

OG

May-11

P

1485

271

341

OG

May-11

C

1485

11

666

OG

May-11

C

1490

5

970

OG

May-11

P

1490

379

416

OG

May-11

P

1495

86

280

OG

May-11

C

1495

35

361

OG

May-11

C

1500

211

6762

OG

May-11

P

1500

445

522

OG

May-11

P

1505

17

333

OG

May-11

C

1505

76

306

OG

May-11

C

1510

507

1731

OG

May-11

P

1510

344

116

OG

May-11

C

1515

116

1374

OG

May-11

C

1520

580

5823

OG

May-11

C

1525

143

747

OG

May-11

C

1530

128

578

OG

May-11

C

1535

95

289

OG

May-11

C

1540

9

730

OG

May-11

C

1550

40

1570

OG

May-11

C

1600

26

1515


The Next 48 Hours
We have alerted the reader to this possibility for the past week. All that remains is this:

Today the LME is closed
This
deprives the market of a deep source of liquidity. While the LME
Players are surely watching and trading today, we suspect the “A’ teams
may not be, however, as holiday continues for many and trading at 9PM
London time is not very fun if you are an MD at a large Bank. Also
remember there was no LME fix today, which has an effect on balance
sheets for London firms. No London Fix, no Balance Sheet Axe, so to
speak.

Tomorrow Comex Options Expire

If
the Option Longs are right, then the market will be propelled through
the 1520 strike. Futures should receive additional support at some point
from the negative gamma hedging of those non-directional players who
MUST adjust their delta hedges.  The longs are playing for a longer time
line than the shorts in this instance.

If
the Option Shorts win this battle then we will pin the strike.
Remember, a violent sell-off is not good for the shorts either. A pin
means the options go out worthless theoretically, and the future hedges
that longs carried against those shorts can be liquidated for a profit.

Let’s
assume next that the Options Shorts “win” this battle and through hope,
prayer, or their own attempts to keep the market in a range, the $1520
strike is Pinned or near-Pinned on the closing bell at 1:30 PM ET
tomorrow.

The Pin
If
a Pin occurs, the longs have another two and a half hours to decide if
they wish to abandon or exercise their calls. They own the optionality
at the strike. The option shorts can still lose a lot of money, even if
the option longs make none. A sell-off is very possible, wherein the
option longs abandon their calls, but the option shorts still have
hedges to unwind. The Shorts would be forced to use statistical methods
to determine if they will get exercised or not. More than likely this is
a digital event, and statistics do not matter when most of the
contracts are in the hands of a single player or a group of like minded
players, as may be the case here. We are likely looking at an
all-or-none exercise if we pin the strike. The shorts would be in the
dark.


Manipulation in the Commodities Market
A
multitude of individuals and firms have been accused of market
manipulation, over the years. Many individual traders have been brought
to task for their actions. The Hunt Brothers attempt to corner Silver,
Yasuo Hamanaka of Sumitomo for his copper manipulation in 1995, by,
various “rogue’ traders and brokers and most recently, the CFTCs
successfully prosecuted of a case involving Brian Hunter of Amaranth for
his actions in the natural gas market. Nonetheless, very few firms have
suffered commensurately.

Business as Usual
Firms
that have been successfully prosecuted continue to operate in the
markets they have manipulated, usually with monetary wrist slaps. To be
fair, major firms settle disputes all the time, but the fines are not
proportional to their balance sheets when compared to the individual
fines; nor are the firms’ abilities to go back to business-as-usual in
the market place affected.

It’s Baked in the System
We
believe manipulation is a product of many things, and attempt here to
boil them down to three broad categories. First, the U.S. Government’s
accounting and regulatory policies unintentionally enable these events
to occur. Second, the rights accorded corporations give them the ability
to mandate profits above all else, all the while getting the same
privileges an individual person does. Companies have no social contract
and their goal is to continue to exist, a combination easily misused.
Finally, market structure, especially in commodities lends itself to a
tail wags the dog situation wherein the transparent pricing mechanism
for settling contracts is not where most of those contracts actually
trade. This results in a disconnect between liquidity and price that can
lead towards “managed market” abuses.

We
intend over the next week or so to outline at the highest levels how
government policies, corporate mandates, and market structure contribute
to the moral hazards in derivative markets.


For today and tomorrow, we will just be watching the Precious Metals markets like we suspect many of you will. Good Luck.

Read full report below (PDF)

Market Manipulation Part 3

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Dangertime's picture

Silver peaked, Bitchez.

mikhail kalashnikov's picture

in soviet russia, silver peaks YOU!

Phillips Capital's picture

I finally got the opportunity to close out my SLV position! Yes, i've had it for so long, i didn't even know how terrible an idea it was when i bought it. THAT long ago. The last months haven't even given me the ability to justify selling.

Anybody use SIVR? How is it's prospectus? I really don't want to buy PSLV b/c of the insane premium it runs. 

The Fonz's picture

The premium is there for a reason... PSLV has it's silver. It's in one of the few stable countries that speak english too.  You can go with the swiss silver ETF, and the Franc looks fairly good, but can you drive there and pick it up?

rocker's picture

Is this the same butt head who told Tyler he called the top last night?  LOL

The Fonz's picture

You might have me confused with The Ponz. I certainly didn't insult Mr. Durden.

ZeroPower's picture

Swiss vaults. Should be "safer" than SLV.

NotApplicable's picture

If you trust the mob d.b.a. "The Canadian government," CEF is a way to get exposure to both silver and gold.

For all I know though, it's full of tungsten and lead. Caveat Emptor!

Phillips Capital's picture

yeah. unfortunately we have to play "sight unseen" in 401ks or IRAs. i cant hold physical in these things so i have to take somebodys word for it. right now i am in CEF and thinking if i want to add more silver exposure then i may buy SIVR. for all i know theyre as shady as SLV, who knows. sucks to be an investor. 

Frein's picture

Yes, it does suck. Personally, I sold my PSLV because of the gargantuan premium and bought into SIVR. It seemed safe enough (though you can never be 100% sure) while the PSLV premium seems like a bomb just waiting to go off. Of course, after underperforming against SIVR for about a week, the PSLV premium then actually increased rapidly while PSLV outperformed the underlying metal many days in a row.

I just don't understand this market any more. It's all weird and perils are everywhere. The mining and streaming stocks take a beating day after day while the metals they deal in skyrocket in price, too. I'm completely confused.

Frein's picture

SIVR uses allocated vaults, so it's not quite the same as SLV.

reTARD's picture

The problem with SIVR is that it is under the custodian and trustee of HSBC and Bank of New York Mellon. FYI, the vault location is in London.

And just like SGOL which is under the custodian and trustee of JPMorgue and Bank of New York Mellon. This vault is actually in Zurich.

I do not trust this banking cartel of JPMorgue/HSBC.

tomster0126's picture

i for one don't trust the Canada mob...thoughts on the KeystoneXL pipeline and importing more tar oil sands from those bastards?

 

www.forecastfortomorrow.com

Smu the Wonderhorse's picture

I use SIVR and AGQ for trading in addition to physical possession.  I am not going to pay any premium for PSLV, I'll just keep the silver at home, thank you very much.

Temporis's picture

No silver is going on sale.

Thank god.

I wanted to buy a shit load more before it jumped like it did.

 

SILVER FOR LIFE BITCH

 

Dangertime's picture

You'll have a dip buying opportunity for the next six weeks as this pig gets roasted.

Where are Aka and Tmosely?  The idiots who kept pumping this thing and said I was stupid for buying puts?  I'm up over 10% against my cost basis.  What have the idiots got to say now?

Harlequin001's picture

funny old thing, someone else telling me to sell what's going up...

Better to sell your shorts than lose your shirt...

Vagabond's picture

We're barely below where we closed on Thursday.  I wouldn't go counting your chickens quite yet.

bothsidesnow's picture

Unfotunately this recent move to 49.87 on my spot ticker was driven by illiquidity. Just goes to Shows you even the safest of investments is subject to market manipulation.

Ag bounced off support at 45.61. But I watched the action on the way up at 45.61 it's tenuous support at best. Longs have about 48 hours to get out if your a paper trader and well the guns and ammo silver holders you will never get out until you you have used your last bullet to stave off the angry mob that is coming for your silver so they can pay their Netflix bill.

48 hours until the man you hate so much kicks you all in the nuts.

 

Harlequin001's picture

but it's going up again now...

bothsidesnow's picture

Yes it is and it's hovering right around 47.50 an options  strike price. This holiday has been a feast for the options players with the illiquidity they can drive the market one way or the other with a small amount of money and profit on the options.

The real action will come Wed.

GoinFawr's picture

Let's just put a timestamp on that one.

fiftybagger's picture

You are truly pathetic.  Go back to your momma's basement.  Recess is over

schoolsout's picture

I'm up 300%

 

and I'm pretty sure you or your other alias was telling us to sell silver at $30

 

 

Creed's picture

silver spiked $2.54 last I checked 7 hours ago

 

now it's down .60 cents

 

Dangertime you're starting to sound like a hysterical troll & you're going to lose any support you may have had here from fair minded individuals like myself

One of the hallmarks of a hysterical troll is popping in as soon as pm's take a small hit and yelling FIRE!

Most people on this site are well aware of silvers volatile history and have no need of your bullshit warnings.

Sudden Debt's picture

Silver isn't down. It's at 47,72$

Oké it whobbled a bit because "somebody" tried to manipulate it down today and it didn't work again, but that's no reason to sweat.

I bet they hoped to bring it down 20% and they failed. They just made sure more speculators where able to buy it below opening price. A JPM donation to the people so to speak.

 

ZeroPower's picture

I declared last week i had bought some puts as well (May and Julys) and, despite it being more of a hedge than anything, since i closed out any silver longs i had im now just hoping for a drop.

If it doesnt come thats fine, but the frothy action overnight was too stupid to justify sustained $48+ levels.

Would not be surprised to see a correction to high $30s.

GoinFawr's picture

And I wouldn`t be surprised to see you type the same thing over and over again at every retracement. Go long ZSl if you`re so sure. Saxxon might have some sage warnings which you might be wise to heed on that one though.

@Dangertime: Whoops. Ag 47.79 US bitz and bytes

Bonne Chance!

ZeroPower's picture

Might very well be wrong, have no problem admitting this. Learn from mistakes, you know. Speaking of retracements, there have literally been none on the daily silver chart for the past 2 weeks, which is why going short here is potentially less risky than long. But, a bull market is a bull market.

ZSL is shit in it's declining trend, keep it overnight you'd lose on the daily re-balancing. 

Yen Cross's picture

Highlights in yellow? Pick on me!

Yen Cross's picture

Hey blind eye? Draw me a trendline on an hourly usd/jpy chart! You know the news > RIGHT!

GoinFawr's picture

Apr.26,2011

Headfake.

Too many dykes, not enough thumbs (and I mean that in a purely non homophobic kinda way). There I was thinking these guys were 'all thumbs' too. Ah well, live and learn.

Op-Ex mantra for me and mine: C-U-Next-Tuesday, 'what a cunning stunning stunt`, or Op portunity Ex travaganza.

Update Apr.27,2011

This is where you say,
"I gotta hand it to you Goin'..."

tmosley's picture

If you want to know what the idiots have to say, I would suggest you record your own voice and play it back.

I call BS on your being up over 10%.  We're still above where we were on Friday's close.  Only went down to $46.

Face it, moron, you are a loser, and any gains you had have evaporated like a fart in the wind.  I, on the other hand, am up hundreds of percent.

Absinthe Minded's picture

I bought physical at $16.80, I'm up over 200% over my costs. If this is being an idiot then idiocy is bliss. Incidentally I may sell some because I think we are going to have a correction with the FED's little meeting on Wednesday. I don't think it will be anything earth shaking, just enough to shake out somw weak hands. Then I'll be right there to BTFD.

Overflow-admin's picture

Only Chuck Norris can peak silver.

Michael's picture

There's no more physical silver on the store shelves to buy at any price.

Do your best to get your hands on physical silver at whatever price you can.

Banjo's picture

If people buying real physical silver believe the silver story. My suggestion is NOT to play the markets but continue to accumulate real physical silver just more slowly eg. buy 10-20oz per month instead of 40 or 60.

If silver takes a big hit say back to mid 30's Im going to take a big "physical"  bite of physical courtesy of some interest free credit card somewhere and pay that back over time.

Good luck everyone.

reTARD's picture

Silver, bitchez.

I'm fucked because I'm the Ben Bernank and the SLA is kicking my arse.

reTARD's picture

Silver, bitchez.

I'm fucked because I'm the Ben Bernank and the SLA is kicking my arse.

eisley79's picture

new report from Dangertime's mom's basement.

 

pizza inventory at all time low... imaginary losses mounting... need for new alias rising

DutchTreat's picture

Silver - This is just a retail shake out.

unwashedmass's picture

 

ya got that one right. waiting till the dust settles and going to load my little boat with GPL and FVITF.....as well as some silver futures.....bite me blythe.

CH1's picture

Cue the Pure Prarie League:

Jamie, whatcha gonna do,

I think Blythe can stay with you,

for a while or at least for one more move...

 

schoolsout's picture

GPL needs a swift kick in the ass...

MonkeySmoke's picture

sold out of GPL and replaced with FVGCF; which received a swift kick from Sprott.

trav7777's picture

let them fight over it with the paper...shit goes up, shit goes down, whatever

bob_dabolina's picture

deep

thanks for the insight