16 June 2015 at 14:30 GMT
- 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
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.
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.
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.
— Edited by Martin O'Rourke
Ole Hansen is head of commodities strategy at Saxo Bank