Gold futures for August delivery on the Comex division of the NYME rallied to a daily peak of $1,253.50 a troy ounce, the most since last 3 weeks.

Safe-haven demand is strengthened again Fed’s stance on monetary policy, defy market expectations for rate hikes.

Yellow metal resume gaining especially after Yellen hinted dovish moves from Fed, the prices have been sensitive to moves in U.S. interest rates. The gradual path to higher rates is seen as less of a threat to gold prices than a swift series of increases.

Well, approximately about a month ago we had advocated a hedging strategy (3-Way Options Straddle versus calls), as the shorts on calls would have been a certain yields by now we now like to append existing portfolio with writing an OTM put option so as to match the trend.

For more reading on the previous strategy follow below link:

http://www.econotimes.com/FxWirePro-Hedge-gold-risks-in-neutral-risk-reversals-via-3-way-straddles-versus-calls-sensing-theta-advantages-208163

OTC Observation: The implied volatility of 1W XAU/USD ATM contracts have reduced below 15% (14.5 to be precise) and 15.7% for 1m tenors.

Although the risk reversals are still signaling upside risks in the long run, hedgers seem to be neutral in near terms ahead of Fed’s monetary policy guidance.

Well, considering above fundamental developments in bullion markets we could now foresee the juicy times in writing an OTM puts to the existing strategy.

More evidently, the precious yellow metal prices could surge further on a broadly weaker U.S. dollar and indications that the Federal Reserve was in no hurry to raise interest rates boosting the yellow metal again.

Thereby, the alteration goes this way, go long in XAU/USD 2M At the money delta put, Go long 4M at the money delta call and simultaneously, Short 2W (1%) out of the money put with positive theta.

Rationale: Bidding short term neutral risk reversals with writing 2W OTM put contracts, as stated above bullion market remains safe-haven demand which is why longer tenor calls.

Please be noted that as the cash inflows as the underlying prices keep spiking, their corresponding payoff structure has been exponential, for every rise in the spot the corresponding payoffs would be doubled.