KGC - Bearish on Gold Might Point to Bullish on Market

Discussion in 'Options' started by livevol_ophir, Sep 29, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    KGC closed at $19.00 up 1.6% yesterday.

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    An interesting trade build up in a gold stock... First, let's quickly look at the GLD three month stock chart (<a href="">in the article</a>).

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    Basically straight up.

    KGC traded over 37,7000 options yesterday on total daily average option volume of just 12,480. The largest trade was 10,400 Nov 17/20 risk reversals, bought puts/sold calls (I think). The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The Options Tab (<a href="">in the article</a>) illustrates that the calls are mostly opening (compare OI to trade size), the puts are ambiguous. Looking at the new OI pre-open, I see the put OI has jumped to nearly 20,000, so the puts were opening as well.

    The Skew Tab snap (<a href="">in the article</a>) illustrates the vols by strike by month.

    We can see the front three months do have a turn up to the upside, though for a commodity this is actually normal.

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

    What's noticeable is that the stock (gold) is ripping. All-time highs are occurring in the commodity almost daily at this point. I find the order flow to be interesting in that it's bearish, long a touch of vol (21 vol purchase in the puts to 17 vol sale in the calls) and a double down. In general the market sentiment feels more bullish and bets on gold no longer being the best investment echo that.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts:

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  2. livevol_ophir

    livevol_ophir ET Sponsor

    Getting word of a straddle buyer bid in Jan'11 on the 19 line. More vol buying... interesting.
  3. rew


    KGC has long been something of a heart breaker. It hit its peak at $27 back in March 2008, when gold first hit $1000. Lately any time KGC reaches about $20 it gets whacked down into the $16 - $17 range a little later, regardless of the gold price. So I guess somebody is betting that history will repeat, although this isn't a bet I'd make myself. Despite their alleged leverage over the gold price a lot of gold stocks have done less well than the metal itself.
  4. livevol_ophir

    livevol_ophir ET Sponsor