Options Trading News: The Gold Rout

Options Trading Players Cautiously Bullish on Gold

(Businessweek Bloomberg)

Gold received its biggest rout in three months and some analysts have warned of further declines but it appears that options trading players remain bullish to some extent.

Specifically, ten of 21 surveyed by Bloomberg now expect gold to gain next week – the lowest proportion since the end of July. Gold bullion also slide roughly 9% last week from a record $1,923.70 an ounce back in September but is still up 12% to $1,594.20 an ounce for the year on the Comex in New York.

On the other hand and despite investors cutting 13.3 metric tons of gold from their ETP holdings on Thursday, the highest amount since August 24, assets are still only less than 1% below the record set back on December 14. Moreover, the most widely held gold option gives owners the right to buy gold at $2,000 by March while the eight biggest options holdings are all call options that are at 13% or more above today’s prices.

However, analysts have said that this could be the beginnings of a bear market for bullion where prices could sink to $1,475 or even the $1,400 level. Nevertheless, gold is still set to head for an 11th consecutive annual gain but last week’s declines mean it is also set for its first quarterly drop in three years.

Any plunge in gold prices could trigger more buying from central banks who are in the process of expanding their reserves for the first time in a generation. In fact, the World Gold Council now expects central banks to buy as much as 450 tons this year while official gold holdings now stand at 30,708 tons.

Hence, some analysts are predicting a gold rally around the second half of next year thanks in part to the turmoil in Europe and elsewhere – meaning bullion could reach $2,000 in 12 months or rally to as much as $2,400.

Gold Option Trading Volatility Below Peak

(Reuters)

Implied volatility in the gold options trading market was subdued at mid week, an indication that bullion is seeking to find a new price range.

On Thursday, the Chicago Board Option Exchange’s Gold ETF Volatility Index .GVZ, also known as the “Gold VIX,” fell 4.72% to 27.28. The Gold VIX had peaked at 43.51 back on September 23 and remains far lower than in both August or September when gold prices had peaked and then began to fall. Analysts say that low volatility could be due to a slower holiday season and less fear in the gold market.

The GVZ is considered to be a good measure the market’s expectations of 30-day volatility in both gold put and call prices.

Oil Options Trading Volatility Dropped

(Businessweek Bloomberg)

After Fitch Ratings lowered France’s rating outlook and put Spain and Italy on review for a downgrade, oil options trading volatility dropped as the underlying futures hit a six-week low.

Implied volatility for at-the-money options that will expire in February fell to 36.8 by Friday at 2 pm from 38 the day before while oil fell as much as 1.4% after Fitch cited Europe’s failure to come up with a “comprehensive solution” to solve its debt crisis as a reason for lowering its rating outlook.

Friday’s most active options trading contracts were February $110 calls where 1,920 lots changed hands by the afternoon, falling 14 cents to 44 cents a barrel; and February $90 puts where 1,396 lots were traded and fell 3 cents to $2.58.

Options Trading Ideas: Best Buy (BBY)

(Forbes)

Electronics retailer Best Buy (BBY) got hammered after reporting a 13% drop in third quarter earnings from $217 million to $154 million and a lackluster forecast for next year.

Before Best Buy announced earnings, there had been a lack of optimism from options trading investors as the company attracted total call open interest of 82,231 contracts verses put open interest of 60,802 contracts for the December series for a slight bullish front-month put/call open interest ratio of 0.74. This trend continued even after earnings were reported.

Options trading investors looking to profit from Best Buy could enter a bull put spread – a neutral to bullish strategy that involves selling an out-of-the-money put (e.g. the December 25 contract) while buying a deeper out-of-the-money put (e.g. the December 24 contract) to limit any potential losses on the position.

Share and Options Trading on Research In Motion (RIMM)

(AVAFIN)

Recently, institutional trading on Research In Motion (RIMM) shares yielded a bought/sold volume ratio of 1.50 resulting in 1,080,510 shares on the buy side along 720,343 shares on the sell side. This implies a cash inflow of $16,930,901 verses cash outflow of $720,343 – meaning that institutions may actually have positive outlook on RIMM shares.

On the options trading side, traders traded a total of 299,675 contracts including 129,212 call and 170,463 put contracts were traded for a 1.32 put/call ratio.

Bullish Options Trading on Avon Products (AVP)

(Forbes)

Investors went bullish on Avon Products (AVP) after news that the company will replace its current CEO next year. In fact, Avon rose as much as 11.1% to $17.93 at the start of one midweek trading session.

On the options trading front, 10,000 calls were purchased at the July 2012 $20 strike and could be the work of a bullish investor who is preparing for shares to extend gains. On the other hand, these long calls were actually tied to short stock which indicates bearishness on Avon. This options trading investor sold 330,000 shares of AVP stock at $17.40 and then purchased calls to synthetically buy long puts to benefit from a share price decline.

Category: Online Options Trading