Condor Options

Volatility Tracker for the week of September 21, 2009

Monday morning greets us with moves lower in gold, silver, equities, and oil and what looks to be the first consecutive day of gains in the US dollar index since late August. If recent behavior continues, these moves will be reversed promptly, but many traders are increasingly watching for signs that the summer reflation rally may be nearing an end. Clearly, gains of this magnitude at this rate are only sustainable if you think stocks are still undervalued by half, but at the same time there is no reason to establish major short positions. If equities do decline into the fall, absent some surprise catalyst it seems more likely that they will roll over rather than correct sharply. I would be more sanguine about a gentle correction or continued rally if implied correlations came down form here. [10]

I am still neutral-to-bearish on gold in terms of both price and implied volatility [11,12], but will watch dollar price behavior carefully. Options on oil seem fairly priced here [16,17] and I do not have a directional thesis at this time on either price or implied vol for oil.