We came across an interesting research piece from DB today, All That Glitters is Gold. DB analysts suggest an options strategy to create exposure to gold prices. To note, DB is positve on gold prices, reasoning the metal will drive higher by central bank demand and declining faith in paper currency. If you are a gold bull Deutsche Bank suggests taking advantage of "skew" by buying upside calls on GLD. From DB:
Unlike equities, commodities tend to have upward-sloping skew with higher implied volatility for higher strikes. GLD skew is currently near its highs over the past eighteen months, suggesting upside calls are cheap. Figure 1 shows the 80-120% 6M and 12M skew on GLD. Figure 2 shows 6M skew as of today’s close and as of October 7, 2009 close. Notice that the 90% put traded at similar implied volatility on both dates. Since October 7th upside implied volatility has decreased materially and downside implied volatility has been bid up by investors seeking protection. Investors who desire long exposure to gold prices should consider buying calls on the commodity ETF GLD while upside is relatively cheap.
Disclosure: No Positions