Capturing the projected CME Group CVOL range in gold through 28 May 2024.
This strategy does not trade in and out of the market it’s a defined risk long-term trade that enables us to maintain positions until the profit objectives are achieved or the contacts expire 28 May 2024.
Start balance
|
|
$10,000 |
| Potential outcomes for this trade |
Net Profit or loss |
New Balance |
| If gold trades at $2,255 (+10.26%) once by 28 May |
$23,920 |
$33,920 |
| If gold trades at $1,655 (-19.32%) once by 28 May |
$37,920 |
$47,920 |
| Gold trades at $1,655 and $2,255 once by 28 May |
$61,840 |
$71,840 |
| Worst case, if gold stays flat through 28 May 2024 |
-$7,280 |
$2,720 |
| June 2024 gold quotes & chart to track this trade |
Quotes |
June 24 Daily
|
Gold 2023 CVOL spreadsheet
2) Historical ranges in gold 1980-2023
| CVOL projected range in gold over the next 12 months |
29.58%
|
| Average 12 month range, 1980-2023 |
29.36% |
| Max 12 month range, Jan 79 – Jan 80 |
270.21% |
| Min 12 month range, Sep 94 – Sep 95 |
6.74% |
| Highest High, August 2020 |
$2,070.48 |
| Lowest Low, July 1999 |
$252.48 |
| Average price 1980 – 2023 |
$752.70 |
3) Position
| Action |
# |
Strike |
Type |
Price |
Paid/Collected |
Purpose |
| Buy |
5 |
2355 |
Calls |
41.00 |
-$20,500 |
To hedge upside risk on the 2255 write |
| Write |
10 |
2255 |
Calls |
56.10 |
+$56,100 |
Write, to generate time premium |
| Buy |
5 |
2155 |
Calls |
78.10 |
-$39,050 |
Capture the move from 2155 to 2255 |
| Market |
|
2020 |
|
|
|
Option Expiration 28 May (337 days) |
| Buy |
5 |
1750 |
Puts |
19.40 |
-$9,700 |
Capture the move from 1750 to 1650 |
| Write |
10 |
1650 |
Puts |
10.10 |
+$10,100 |
Write, to generate time premium |
| Buy |
5 |
1550 |
Puts |
5.10 |
-$2,550 |
To hedge downside on the 1650 write |
Potential outcomes
|
|
|
| Max risk net of bid/ask & all fees |
-$7,280 |
Gold stays flat for 337 days |
Gold hits $2,255 once by 28 May
|
+$23,920 |
requires a +10.26% move up |
Gold hits $1,650 once by 28 May
|
+$37,920 |
requires a -19.32% move down |
Hits $2,255 & $1650 once by 28 May
|
+$61,840 |
Does not matter which occurs first |
| Disclosure |
4) About CME CVOL and how it works
Following the Fed’s June meeting, the CME Group FedWatch tool tells us the probability of further interest rate hikes remains while the turmoil surrounding the banking sector has not disappeared, traders and investors have been torn, between higher rates that would pressure gold lower or parking funds in the oldest monetary safe haven gold pressuring the price higher.
- March 10: US regulators take over SVB
- March 15: Credit Suisse borrows over $53B from the Swiss National Bank
- March 17: SVB files for Ch 11 bankruptcy
- March 18: UBS agrees to purchase Credit Suisse
- May 3: FOMC meeting
- May 30: Rule Committee brings debt ceiling legislation to the floor
Using the CME Group CVOL measurement, in the chart above the convexity in gold options represents the range. Convexity is a measure of the ratio of the volatility level of the out-of-the-money strikes to that of the at-the-money, meaning how expensive are the “extreme move” options.
CVOL Indices measure the expected risk or volatility of an underlying futures contract based on the information contained in the prices of options on that underlying futures contract.
CVOL indexes use an improved simple variance estimation method to provide expected volatility metrics derived from the entire Implied Volatility Curve. The original simple variance methodology was introduced in two papers by Ian Martin, Professor of Finance at the London School of Economics, see Simple Variance Swaps and What is the Expected Return on the Market?“
CVOL Skew calculations
If you’d like to learn more contact or message me, I’ll answer your questions and provide supporting links for additional information and/or verification.
To open an account to do this trade please complete this form my team will match you to a Member firm that can accommodate your regulatory jurisdiction. .
Performance and educational links
If you have any questions, please contact me.
Peter Knight
Voice & Video Chats.
Message me
Disclosure
