Unhinged
December 4, 2023
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–Attacks on a US warship and commercial vessels in the Red Sea sparked huge volatility in gold. Dec Gold is currently nearly unchanged at 2069, but made a new high of 2130 and has had a range so far of $69. Bitcoin also exploded higher but is holding gains above 42k, high since April 2022. I would suspect that these moves support a steeper US curve.
–In any case, SFRZ3 currently trades 9463.5 after having printed 64.75 Friday. Going into option expiration on Dec 15, 2 days after the FOMC, open interest is as follows:
Z3 future 1.49 million.
9462.50c 429k
9468.75c 419k
9475.00c 495k
9462.50p 325k
9456.25p 289k
On Friday before the settlement, Z3 9468.75c were 0.5/0.75. If a market as large as gold can experience wild volatility, then Z3 also has a chance to become temporarily unhinged.
–On Friday near calendars imploded, as SFRZ4 was the strongest contract on the strip at 9601, +21.5 on the day. Z3/Z4 fell nearly 20 bps to -137. H4/H5 barely held on to its status as the most inverted 1-year, falling 11.5 to -137.0 (9491/9628.5). Powell’s tepid comments suggesting risks are balanced between more tightening and more ease convinced the market that the next move is a cut, and the timing of that move was pushed forward, right into JP’s face.
–With just ten trading sessions to go, 0QZ3 9600 straddle settled 31.5 vs Z4 at 9601. Prior week atm 9550 straddle was 25.5.
