Video

Kim Cramer Larsson
Areas covered in this webinar by Saxo Bank technical analyst Kim Cramer Larsson include EURUSD, USDJPY, GBPUSD, EURGBP, gold, silver, S&P 500, the Nasdaq, the Dax, the FTSE and the Dow Jones.
Article / 16 June 2015 at 14:30 GMT

There's a storm brewing for gold — look at the options skew

Head of Commodity Strategy / Saxo Bank
Denmark
  • Gold stuck in a range for three months despite ongoing uncertainty over Greece
  • Downside risk mitigated by Greek-headline risk, tomorrow's pivotal FOMC meeting
  • Options split between Puts and Calls but latter dominate top five

m


Gold's stuck in a range but the options skew suggests a storm's brewing. Photo: iStock

By Ole Hansen

The rangebound nature we have witnessed in gold for the past three months has left many investors sidelined looking for opportunities elsewhere. Greece has seen one deadline come and go and at this stage we seem to be further away from a solution than ever. The gold reaction to these uncertainties has been unimpressive with the price sitting near the lower end of its range. 

With no clear direction currently presenting itself at-the-money volatility in the options market has as a consequence been drifting lower recently.  

Gold volatility
 
The tail-end risk, however, still remains and options traders currently view the downside risk as the greatest as per the chart below. But during the past week, the cost of out-the-money call options has risen while equivalent put options has fallen.

The 2% narrowing of the spread between low delta calls and puts is likely to have been driven by the ongoing uncertainty related to Greece and also potentially the upcoming Federal Open market Committee meeting Wednesday. 

Gold volatility skew


















The top ten most traded options strikes during the past week are evenly split between calls and puts with the August 1250 Call having seen the biggest interest. Followed by this, we find an options strategy that took place yesterday in the December 2016. A 5,000-lots 1400/1500 call spread swapped hands at $13.70/oz. 

In fourth place we find the July 2015 1200 Call which expires next week. It has last traded at $2.80/oz and is a relative cheap way to look for upside potentials during the next eight days.

Top ten most traded options strikes
 — Edited by Martin O'Rourke

Ole Hansen is head of commodities strategy at Saxo Bank

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail