Gold Options Skew Shift Signals Bullish Market Sentiment

The positioning structure in the gold options market is undergoing a significant shift, according to quantitative trading firm Susquehanna International Group. Skew, a measure of demand for options at different strike prices, has shifted decisively from downside puts to upside calls, reversing the pre-summer structure where protective puts were relatively more expensive.

Susquehanna's co-head of derivatives strategy, Chris Murphy, noted that even as gold prices continue to climb, one-month implied volatility remains near recent lows, allowing investors to increase gold exposure without paying a higher implied volatility premium.

Murphy highlighted two notable trades: the purchase of 8,000 November-expiry call options on the SPDR Gold ETF (GLD-US) with a strike price of $460 for approximately $5.55 per contract, and buying roughly 25,000 September-expiry put options with a $350 strike price for $0.62 per contract.

The shift in skew is critical, Murphy emphasized, as it signals that market participants' outlook on gold has shifted from a defensive mindset to an aggressively bullish one, with investors willing to pay higher option premiums to participate in further upside.