I'm not in any GC at the moment but I'm really curious as to how folks might handle a major move like this if they were in GC puts. Obviously having free cash for margin is adviseable.
I haven't dug much into the fundamentals but from a technical perspective GC broke down out of a significant sideways channel on a weekly timeframe. The next support level on the weekly is the 1300/20 area. Beyond that is the 1250 area which is an approximate 50% retracement from the August 2011 high/October 2008 low.
Also it seems interesting to me that we are at the top of a major multi-month channel on the US dollar and approaching the 2007 highs in the S&P.
Given how the implied volatility has gone up on both /CL and /GC why would you not consider selling deep OTM calls now then get out when things settle down?
Just asking for my ongoing education.
I'd like to add a few thoughts and curious what you think.
Early yesterday was obviously a much better spot to to take a short call position in /GC but for the this discussion lets assume the position was put on sometime today or even tomorrow.
Why sell the 1820 calls when the 1600's have a 95%+ probability of expiring worthless.
With such a significant break on huge volume there is also new information that makes a push back above 1500 much less likely.
Margins went up but so did implied volatility and premiums. So if /GC does grind higher after the short call position is on volatility would likely contract from these extremes hedging the delta loss nicely and letting theta do its thing. A down day or two at some point and the position is very nicely profitable.
Just too much volatility not to sell and who really want to be short puts here?
I wasnít able to get 1.4x excess, I must have misunderstood something. Can somebody check this calculation, please.
If we use 2x excess until 14 DTE, then 0x excess from day 7 until expiry and if the entry was at 56 DTE we would have:
56-14 days x 2 = 84
14-7 days x 1 = 7
7-0 days x 0 = 0
And the average excess would be (84 + 7 + 0) / 56 = 1.625
So thatís ( (DTE Ė 14 x 2) + (7 x 1) + (7 x 0) ) / DTE
It gives 1.65 excess at 60 DTE, and 1.58 excess at 50 DTE etc
I had used a log scale calculation when I came up with 1.4. So the excess wasn't strictly dropping at 14 DTE and 7 DTE. It was a more gradual drop.
That more matches what I do because there are some options that I drop the excess sooner because I am so far OTM. For example, ESj3 1200p I moved to 1X excess at 24 DTE and zero excess at 14 DTE. Using 60 DTE that gives you 1.37.