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Gold vols: The gold 1M ATM vol levels opened up the week with an uptick of about 0.3 vols (from 7.9 to 8.2) but finished the week on the back foot at historical low @ 7.85 vols.
Front-month gold gamma rose from 7.8 vols to 8.3 vols to start off last week and gradually declined throughout the rest of the week. The current level of 7.75 is close to being the lowest vol level on record.
For 1M ATM vol has been showing a neutral signal over the last few days. Despite the recent bounce in the pricing of gamma, XAU/AUD may be a better choice in gamma space amid AUD oversensitivity on data prints. Recently we have seen an increase in the 1Y - 1M vol spread in gold ATM vol. Historically, a higher value in this spread has resulted in a higher expected return when selling 1Y ATM vol. We recommend selling 1Y ATM gold vol and staying short as long as the spread remains relatively high. Currently, we can trade this at 10.3/10.7, indicatively.
Meanwhile, JPM’s SVM model (Machine Learning Approach to Trading Gold Volatility, Oct 2018) has been stuck at neutral for the past few weeks. However, the relative value ETF volatility model recommends trading GLD vs GDX.
In particular, we recommend buying GLD 3M ATM straddles at 8.50% and selling GDX 3M ATM straddles at 22.40% vega neutral and delta-hedged on both legs. The relative value model is currently showing GLD as having the fourth cheapest volatility, whereas GDX is ranked fair to rich in our universe of 76 optionable ETFs. Courtesy: JPM
Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -8 levels (which is neutral), while hourly USD spot index was at 12 (mildly bullish) while articulating (at 11:35 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
