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FxWirePro: Delta Risk Reversal signals Gold to head towards trendline support – option strips right choice of hedging

After the short term price recoveries, negative delta risk reversal numbers of contracts with 1M expiry inching around -0.9 as shown in the nutshell suggests downside hedging has been relatively expensive which means anticipation of gold prices to fall and daily technical chart makes us to have quite dubious eyes on prevailing bull run as there is now bearish signal generated by weekly RSI and slow stochastic, while stochastic has approached overbought trajectory and %D crossover suggests bearish trend to prevail.

From the above table you can observe the delta risk reversal has shifted into red zone again with increased volatility. Further the positions constructed for bull overview will increase in value with time decay. But for now rate hike is almost deferred and what do you think can be the impact on gold?

Option Strategic Framework: Option strips (XAU/USD)

Next week fed's meeting lined up to end rate speculation that was long lasting, markets likely to remain edgy. And bullion market cannot be an exception, so, buy 15D At-The-Money delta call option and simultaneously short 2 lots of 15D At-The-Money put options with positive theta values. As we anticipate this precious metal to fall in short to medium run to take support near trendline at around 1060 levels but as a matter of hedging in long run, this strategy involves buying a number of ATM calls and double the number of puts. More proportion of puts maximizes the profitability when the precious metal slides.

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