FxWirePro: Gold likely to spike in short-run but delta risk reversal projects long-run bearish sentiments – prefer diagonal strips for hedging

Gold was fallen to five and half years lows of $1,071.28 on 20th July amid the Fed's speculation was on for rising interest rates in September for the first time since 2006. Since then we had already mentioned the prices to have rebound and it has approximately shown 3 percent consolidation. Gold prices have been gradually rising from 1st week of August fanned optimism that the Federal Reserve's raising interest rates until the very end of 2015.

From the above table you can observe the delta risk reversal has been neutral but shifted into red zone again for 3 months contracts with increased volatility. Further the positions constructed for bull overview will increase in value with time decay. But for now rate hike is almost deferred and what do you think can be the impact on gold?

Negative delta risk reversal numbers as shown in the nutshell suggests downside hedging in long term has been relatively expensive which means anticipation of gold prices to fall and although a short term price recoveries are likely on daily technical chart but makes us to have quite dubious eyes as there is now bearish signal generated by monthly moving average and trend analysis. RSI and slow stochastic are not substantiating daily upswings.

Option Strategic Framework: Diagonal option strips (XAU/USD)

Buy 15D At-The-Money delta call option and simultaneously short 2 lots of 1M At-The-Money put options with positive theta values. As we anticipate this precious metal to rise in short to medium run but as a matter of hedging in long run, this strategy involves buying a number of ATM calls with shorter expiry and double the number of puts with long term expiry contemplating the fed's rate speculation on the table.