FxWirePro: OTC Updates on Bullion Markets and Options Trades

Gold’s 1-month ATM vol spiked from 8.5 vols to 10 vols in the middle of the week only to fall back to 9 vols again as spot prices fell sharply on Friday following the strong US jobs report. We think this is a good opportunity to sell 1M ATM vol since our SVM model (Machine Learning Approach to Trading Gold Volatility, Oct 2018) has recently seen a spike in its sell vol signal. The sell signal strength spiked on Tuesday to a level that is above the 95%-tile of its range and has stayed there consistently throughout the week.

We would also consider selling 3M ATM vol instead due to the fact that the 3M ATM vol level is 15% higher in vol terms than the 1M ATM vol level, which is a fairly high spread level historically. At our current prices, we recommend selling 3M ATM vol at 9.9 vols or selling 1M ATM vol at 8.8 vols, indicatively. 

While Gold and Palladium are already far into an internal 3rd wave rally of greater scale, we see great catch-up potential for Silver and Platinum, which are still in the very early stages of it. In line we see the Gold/Silver spread trading significantly lower.

What is more eye-catching is the 2019 gamma outperformance, in our view. Bucking the long-term strongly negative trend, 3M delta-hedged straddles are up 1.6vols YTD. Theta friendly long gamma / short vega calendars were particularly efficient in exploiting the gamma performance. 

Ahead of Fed’s monetary policy that is scheduled for this week, we advocate buying delta-hedged 1Y XAUUSD 1*2 ATM/25D strikes ratio call spread @12.2ch vs 15.25/16.25indic, vega notionals, spot reference: $1,467 levels). Courtesy: JPM