Why steep put skew is a gift to gold buyers right now
Quick observation for anyone wanting to add to gold at lower levels.
Gold vol is up around the 80th percentile. The put skew is about as steep as I can remember. The market is paying a fat premium for downside protection in gold.
For a nervous gold owner, that looks like a reason to stay away.
For a buyer who wants to add at lower levels, it's one of the best setups you'll get.
The mechanics behind that are simple. Steep put skew plus high vol means the puts you'd be selling at the level you'd happily buy gold anyway are very richly priced. The market is essentially paying you a premium to wait at the price you wanted to enter at.
Selling cash-covered puts at the level you actually want to own gold has rarely looked this attractive.
How do you spot setups like this before the surface reset? It starts by clicking the link below.
The structure is straightforward. Pick a put strike at the level you'd be comfortable owning gold. Sell the put. Collect the premium. There are two outcomes.
Gold stays above your strike. The put expires worthless. You keep the premium and your cash. Roll the trade and do it again at the next setup.
Gold drops to your strike. You get assigned. You now own gold at the strike minus the premium you collected. That's exactly the entry you wanted, with the market paying you for the patience.
Both outcomes are good outcomes if your view is that gold is worth owning lower down and that view isn't going to change when we get there.
Selling cash-covered puts at the price you want to enter at, with the surface paying you a fat premium to wait, is the cleanest expression of patience in a name you actually want to own.
Imran
Disclaimer (Your Gains & Losses, Your Responsibility): This content from Options Insight LLC (“Options Insight”) is for educational purposes only and does not provide individual investment advice or recommendations, nor should it be considered an offer to buy or sell any security. All information is general and not tailored to your specific objectives, financial situation, or risk tolerance. Employees of Options Insight may hold positions in the assets discussed. While we use sources believed to be reliable, we are not responsible for errors, omissions, or losses resulting from reliance on this content. Always consult a licensed investment professional.
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