After a fairly sharp decline in the last month, highly correlated to the bounce in the U.S. Dollar, Gold finally bounced Friday off of an important technical level of 1200. It has followed through with a 1% gain today:
Looking at the etf that tracks the shiny metal shows $115, essentially the mid-point of the etf’s 2 year range, as an important support/ resistance level, similar to 1200 in the commodity:
Despite the GLD’s 6% drop from its early May highs, short dated options prices are nearing 52 week lows (30 day at the money implied volatility in blue below), while realized volatility also approaches 2016 lows (how much the underlying is moving, white below), which suggests the sell off has been orderly, meaning little panic in a risk asset that is often synonymous with panic:
What struck me today was the lack of volume in GLD options, as of 3pm, total options volume was 60,000 contracts (fairly evenly matched between puts and calls), which was about a third of the one month daily average of about 180,000 total options contracts.
For those looking to make a directional bet on the price of gold using options in the GLD, they are about as cheap as they have been in a while, despite some potentially market moving events in the offing, namely the FOMC’s June 15 meeting where expectations for only the second rate increase in 10 years, the first since December have been all over the place. There could be a trade here for those who have a strong view of the Fed’s next move, and the direction of the dollar. If you were bullish of Gold, and thought the FOMC’s next two meetings (June 15th and July 27th) could be catalysts for a re-tracement back to the two year highs.
Those looking to wade in here with defined risk can look out to August expiration where the 116/130 call spread can be bought for ~$3 dollars (stock ref $116.30). That targets the 2 year highs around 130 while defining risk to about 2.5% of the etf price. (Like being stopped out at 113). The trade breaks-even at 119 and offers 11 dollars in potential profits.