“Well, she does have a point!”
Gold suffers from the same problem as stock indices, and that is the options
market is “bigly & yuge” compared to the underlying financial derivatives like
futures and CFD’s. So, to review, 𝚫 (delta) is the rate of change of a call/put as
the underlying [futures] trades higher/lower. By definition an ATM [At the
Money] call is priced at 0.50, meaning if gold futures and/or spot rallies $3, the
ATM call most likely rises about $1.50, given stable volatility … 𝜸 (gamma) is
simply the rate of change of the delta.
Here’s the problem … as markets move to the upside, and especially to the
downside rather quickly, those hedge funds & other large traders who are
short calls/puts that are OTM [Out of the Money], suddenly become ATM or
ITM [In the Money] … as such, their deltas rapidly charge higher, and since
it is usually accompanied by a boost in volatility, the OTM options very
quickly start skyrocketing in price … and of course, the large short positions
got some serious losses to now cut … so how do you correctly do that without
creating a bigger problem? … EASY PEEZEE; “if on the upside, you are
forced to buy the underlying no matter what … if on the downside, you are
forced to sell the underlying no matter what … delaying, or waiting for some kind
of correction, can lead to even bigger losses and maybe even a funds liquidation”.
And right now, having seen gold not do Mr. Jack Squat for years on the
upside, outside of little rallies here and there, now suddenly within 5 - 8
weeks, there is a “sea change” in market sentiment thanks to the FED, not
only stopping the rate hikes, but looking very much like the “CNTRL-P” is
getting ready for QE∞ … add to that the fact that China is “buying” and
adding to physical, and you’ve basically got a market with its pants on fire
short calls up to their eyeballs … and that simply means no deep corrections
until they are collectively finished … at that point, the banks [read the
ChiComs] hand them their asses on a plate.
What we really need to see is an expansion of gold’s range, not only in New
York, but daily as well … this less than $6 - $7 range coming into the U.S. day
stinks, and the action lately in New York, although it has picked up slightly,
has been dismal to say the least. Add to that, the market is getting way ahead
of itself, especially with the Mrs. Wantanabe & Gal Pals and other Asian
traders, who for the first time in years, their buying in Asia sees further buying
in Europe, and then very little happens in New York … rinse, repeat, and
they’re absolutely giddy with profits instead of the usual losses … “well, how
long is this gonna be allowed to continue before the inevitable BOOM! lower in
price that you know is coming”?
Another “Flying Wedge of Death” [FWD] day, inside a relatively tight range,
with trading conditions less than ideal [understatement of all time], which
isn’t helped by Turnkey’s spreads which are starting to become onerous
… anybody but me remember 7 - 11 cent spreads all day long?
happening … this market needs to see some downside action. Onto tomorrow
… until then mi amigos … Onward & Upward!!
-vegas
OPERATIONAL, AS WELL AS OUR C2 OPTIONS ADVISORY
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