Precious metals traders have much to digest this week before July ends and we enter into August on Friday. Significant earnings releases, a heavy slate of economic releases highlighted by the monthly jobs non-farm payroll number released on Friday, and major political turmoil in North Africa, the Middle East, and Eastern Europe that has dominated headlines. 

FOMC Meeting Concludes Wednesday

Oh, and let’s not forget, the FOMC meeting that ends on Wednesday with a policy statement and post meeting question and answer with the Fed Chairman. Figure 1 reveals a market that in my view has started to wedge, or in other words trades within a defined range for a continued period.

One could make an argument that looking at gold year-to-date that we have been in range for quite a while. However, that is an argument for another day. It is my contention that when there is some clarity on the economic and earnings releases later this week, that gold makes a significant move one way or the other. It is my view that when markets continue to wedge, the probability for an extended or extreme move in the market becomes greater.

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Trade Idea

In lieu of getting married to one side of the market before the Fed policy statement and in front of the jobs data later in the week, I therefore propose the following trade using September gold options. I suggest buying the September gold 1240 put while simultaneously buying the September gold 1360-1400 call spread. The bid price of this option package is 5 points or in cash value $500.00. September options expire on August 26.  This leaves enough time for profitability for both options to gain in value. While this isn’t a likely scenario, wild price swings can occur at anytime. The risk on the trade is the price paid for the options plus all commissions and fees.

Webinar

For those interested in grains, Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. If you cannot attend live, a recording will be sent to your email upon signup.  

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.