We had advocated a 3-way straddle versus OTM Call on 31st March, by now the shorts on those calls would have fetched a handsome returns.

Refer below link for mire readings on earlier strategy:

http://www.econotimes.com/FxWirePro-3-way-straddles-versus-calls-best-suitable-for-hedging-golds-risks-as-disparity-persists-between-option-pricing-and-IVs-187223

XAU/USD futures contracts for June delivery were last up 0.43% to $1,249.00 an ounce after rising to highs of $1,255.9 earlier, the most since March 22.

Please be noted that the gold's ATM implied volatility of 1W expiries have spiked above 17.5%.

The premiums of 1W ATM put contracts are trading 33% more than Net Present Value, hence, contemplating this considerable disparity with IVs and neutral bullish risk reversal we reckon the opportunity in writing a OTM put while formulating below hedging strategy for gold's short term uncertainty at this juncture.

Gold spot broke resistance at 1250 levels and sustenance is also most likely above this resistance levels (21DMA) from last couple of days, gold is now facing higher targets at 1284.41 levels.

Hedging Framework:

Strategy: 3-Way Options straddle versus OTM Put
Spread ratio: (Long 1: Long 1: Short 1)
Time frame: Short term on short position and long tenors on longs

Ass the buying momentum is intensified, first of all overpriced premiums on puts when compared with 1W ATM IVs hence there exists a considerable disparity between premiums and vols and

OTM puts writing looks to be conducive when contemplating current trend and spiking IVs along with it, so these overpriced premiums of OTM strikes are on the competitive edge for shorts.

How to execute:  

Go long in XAU/USD 1W At the money delta put, Go long 1W at the money delta call and simultaneously, Short 1W(1%) out of the money put with positive theta.