Thursday, September 9, 2010
Gold This Morning - Round 11 --J
Better volume than usual overnight and current levels are beginning to shape up for serious hostilities. We are not yet at the Liston-Ali stage but buyers and sellers are getting toe-to-toe. About two hours ago there was a concerted volume jam that briefly took gold down to $1253.30 with stops doing a lot of the heavy lifting. Since then a steady march to a different drummer has prices $6 bucks higher. The facts: Open interest up by 5,000 Tuesday to ~585,000; GSR at ~62.90; option vols under 14 (why? read my theory below); RSI on gold has eased to ~68 and while still elevated note that this metric is often meaningless when momentum sets in. Yesterday at the close our COMEX floor person remarked that he couldn't recall a time when so many buy-write strategies were being executed as have been recently. This means that longs might typically buy a DEC future and sell say a DEC 1300 call against it for current market of ~$22. You get the drill; it's bullish. So we checked open interest in DEC calls. At 1250 strike there are ~8,000 calls against ~1500 puts. At 1300 strike there are ~13,000 calls against ~200 puts. So with so many writers leaning on the calls vols drop, no? Ergo, the trade should (if you want a long bias) be call spreads. Several weeks ago we quoted the OCT 1250-1300 call spread at $6...today they are $16.