Friday, June 20, 2014

Aqumin Volatility Newsletter 06/20/2014 $GLD $VIX

Still some shine on this gold dogs coat?

The big action yesterday was in the price of gold. Stocks managed to eke out a new high but gold was really the kicker. Maybe the threat of inflation is back in the game, but gold for sure was up around 3.5% today. We had looked at gold volatility in the Option Pit Chat this week and we thought it looked cheap. The 10 day straddles were pricing a 2.10 move and the move today was 4.27. So much for the implied volatility being correct.

Now we sit with skew levels near their peaks. They should be with ATM volatility trading near 7.2%. That is right 7.2% ATM with the VIX trading 10.62. All of the premium is in the out of the money options as the ATM options are showing levels we have not seen in a very long time. That is not the case for gold as it came out of its shell with the IV jumping all over the map. I think the shorts got spooked in a big way over the FOMC take on inflation. That pushed the near term IV up huge.

6-20-2014 11-19-37 AM

3D Skew from OptionVision

Stocks are pricing no chance for any move what so ever. The pricing could be right but just looking at the gold move today shows that IV can price things horribly wrong. Gold IV at the money is almost double the price of the S&P 500. Note how the skew really picked up in gold today. The bid for the downside was very heavy.

Downside time spreads in GLD with the big jump are probably the ticket. Buy a cheap OTM call to hedge just in case the inflation freak out continues.

OptionVision™ – data from ORATS

Read more from Andrew at Option Pit

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