On the Comex division of the NYME, gold for August delivery edged forward 0.06% to $1,333.50 a troy ounce. 

Markets had dismissed the possibility of policy tightening this year with odds at 100% that the Fed will keep rates on hold at the July 26-27 meeting and only a 37% chance of a hike in December.

Any rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.

1M ATM IVs are trading a shy above 15%, skews are suggesting the odds on OTM call strikes while formulating below option strategy for gold's uncertainty at this juncture.

Option strategy for both speculating and hedging:

3-Way Options straddle versus put
Spread ratio: (Long 1: Long 1: Short 1)

Rationale: The implied volatilities are substantially favouring OTM call strikes but considering on-going downswings and major trend uptrend, it is wise to choose straddle versus shorting an OTM strikes.

Moreover, we’ve seen the underlying spot price on technical charts losing buying momentum offlate, so we conclude eyeing any disparity between premiums and vols that keeps us eyeing on shorting expensive puts with shorter expiries. As a result, we capitalize on such beneficial instruments and deploy in our strategy.

So, here goes the option strategy to tackle the baffling this pair:

Go long in XAU/USD 1M At the money delta put, long in 3M at the money delta call and simultaneously, Short 1M (1.5%) out of the money call with positive theta.