08 October 2009

Gold Volatility 8 Oct '09

OK, so I have a thing about Gold at the moment. There is nothing unusual about that as half the universe has a thing about it at the moment. With gold grinding out new all time highs every day, there is nothing to be surprised about.

For me it is more about finding option opportunities, hence the prelection with gold option IVs.

I had an idea that with new highs in the underlying, we'd see new highs in implied vols as punters bought calls with their ears pinned back. This is not how it's playing out at this stage. This IV peak is lower than the IV peak in early September, even though the "actual" volatility of this move is slightly greater than the early September one. So, what this tell us?

Probably nothing.

But if any delusions can be derived from this, it is that option traders are toning down their expectations of more upside in gold. It should be noted that implied is still miles higher than realized with 20 day HV at about 17.5%, but this seem to be a chronic situation. IVs have consistently been higher than realized for quite some time.

The standard wisdom says that either IV drops or realized increases. It ain't necessarily so with gold.

No ideas for a trade *right now* but a few ideas depending on how things pan out


steveplace said...

Jared at condoroptions was thinking that vol skew really ought to be higher in GLD options... seems that GVZ really hasn't kept up with the move.

Wayne said...

In view of the prevailing sentiment, I'd have to agree. Except maybe sentiment is a bit less dollar doomsdayish than some shout about?

Dunno. Just have to trade what's there I guess.