Gold spot is struggling to break and sustain above the resistance at 1275 levels again despite CFDs have been drifting up with a safe haven sentiments, or on the Comex division of the NYME, gold futures contracts for June delivery were up 0.35% at $1,275.80.

Yellow metal is highly receptive to shifts in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion.

A steady lane to higher rates is perceived as less of a threat to gold prices than a rapid series of increases.

Hedging Mechanism & OTC Observation:
The implied volatility of 1W XAU/USD ATM contracts 15.94% and 15.71% for 1M tenors, cheers..! Good news for writers.

The skew appears negligible compared to the volatility, strongly suggesting spread with OTM strikes-like structures, conducive for writers.

Please be informed that the highest theta numbers on OTM call strikes, thereby, the writer of option most unlikely to be obligated for option exercise.

For ITM and OTM options as time to expiry draws nearer, Theta lowers and decreases. The above sensitivity table is an instance as to how Theta responds when the option is ITM, ATM, and OTM, and as time passes. You can also observe the dramatic impact of time decay (Theta) for an ATM option approaching expiry.

How to execute:

3-Way Options straddle versus Call
Spread ratio: (Long 1: Long 1: Short 1)

Rationale: Eying on favourable theta shifts considering lower skew and shorting expensive calls with shorter expiries. As a result, we capitalize on beneficial instruments to reduce hedging cost.

How to execute:  

Go long in XAU/USD 2M at the money -0.49 delta put, go long 4M at the money +0.51 delta call and simultaneously, short 1M (1%) out of the money call with positive theta.

The dollar's recent rapid slide has been accompanied by a constant backdrop of dovish cooing from the Fed. Until this week, both equity and commodity markets had embraced the weak dollar as the elixir to solve all their ills.