Gold FX Options Strategy

Featuring Nancy Davis

Nancy Davis of Quadratic Asset Management is one of the foremost experts in portfolio construction around options. In this trade idea, Nancy identifies a supply demand imbalance in the options market due to structured products and outlines how to play it.

Published on
6 June, 2017
Gold, Trading, Derivatives
5 minutes
Asset class
Currencies, Commodities


  • ps

    pete s.

    24 7 2017 23:14

    0       0

    buy call in xau = long gold/ buy put in aud =aud down.

    i look at the xauaud chart now and it looks like is down sofar since this video. correct me if im wrong im new?

  • bb

    buck b.

    25 6 2017 02:54

    0       0

    Picking a currency to plunge is too hard so I have to pass on this one. I just slowly keep adding to gold, silver and miners to hedge investment portfolio. Hopefully on the auto plunge Grant recently talked about will give me a shot at some cheap platinum. That gold chart was crazy in AUD. If Gold and dollar rally together that would trigger some all time highs in other currencies.

  • BP

    Benton P.

    8 6 2017 18:57

    2       0

    Polling the group... what's the best trading options 101 book out there? I need to get smart on this. It's only going to be more important as the financial system gets more complex and computer driven

  • JV

    Jonas V.

    8 6 2017 03:19

    1       0

    I'm not good with options. Putting in a FX trade short AUD/USD, long XAU/USD would give similar results, correct?

  • PN

    Paul N.

    7 6 2017 22:37

    7       0

    Buying Australian gold miners is another great way to play this. Tons of leverage and less complex for average investors. I would add that the Aussie housing bubble is on the brink of collapse with mortgage rates rising substantially on the most indebted households on the planet. We're headed for a depression and the currency should fall significantly over the next 4 years.

  • ss

    shaun s.

    7 6 2017 20:08

    3       0

    I believe she likes it all in options so that the loss is defined and that the trade is convex. However I also am lost on how to execute this trade.

  • VS

    Victor S.

    7 6 2017 20:05

    2       0

    Very interesting. Thank you, Nancy D.
    Now i have q about details.
    XAUAUD calls - is it OTC contract? What about exchange traded products?I don't see it on IB or Thinkorswim (.ca). XAU seems to have very thin options chain.
    I could find GC and 6A contracts to trade option on.
    How to calculate ratio in between them? I mean how many deltas of GC against how many deltas of 6A?

    One more q: would the same strategy work with GC calls and ZAR puts? Gold is significant export of S.Africa and they are having some political instability - might work for ZAR puts.

  • FC

    Forest C.

    7 6 2017 19:30

    6       0

    Just a novice student in the trading game - I do agree with some of the opinion on segment with regards to option play presented, RV need to make someone like Dave Floyd or Peter Brandt to do a option series ! Still it is a good thing to have alternative views on the underlying - this plus Patrick's video makes a good case on the AUD shorts

  • FB

    Fred B.

    7 6 2017 13:27

    3       0

    Wow, the fact that Nancy , you took the time to clarify your viewers question on your strategy is terrific! This is just one of the many reasons Real Vision is such a great platform and why I re upped for 3 more years! Working for one of those global banks that generate huge profits from all these structured products the clarity of your insight on your being on the other side of this vol selling trade is invaluable . Great interview with Mike Green also. Thank you Nancy!

  • HB

    Heini B.

    7 6 2017 06:47

    4       0

    Talk about democratizing knowledge wow. Just a tip, don't do the trade if you don't know how to execute.

  • MA

    MarketStudent A.

    7 6 2017 06:05

    6       0

    Specifically, how can one execute this trade ? Thanks

  • DF

    Dave F.

    7 6 2017 00:51

    1       0

    Good stuff - like seeing different options perspectives. Thanks

  • RM

    Ricardo M.

    6 6 2017 18:42

    2       0

    Is this the same as if I go long AUDUSD in forex ? I dont have so much experience in options.

  • CH

    Colin H.

    6 6 2017 18:10

    2       0

    Great idea

  • MT

    Mike T.

    6 6 2017 17:18

    42       3

    the following comment is NOT related to the thesis itself. I have posted previously on trade ideas expressed through options. To re-state, there will of course be many RVTV subscribers that are fully experienced option traders, but there will also be many who are not, and for the folks that are not experienced, options strategies that are 100% debit in nature can in the wrong hands, still be potential money losers even if the thesis plays out as described and within the time frame suggested. I hesitate to be critical of this wonderful service that is RVTV but trade ideas expressed through options must at the very least provide some detail beyond the thesis, the structure of option position together with commentary on how best to manage the position as time passes by must be included. There is a reason why debit option strategies, even when the underlying thesis is right, can turn out to be losers, the balance of probability is heavily loaded in the favor of option sellers. Further any one considering using options, if they do not have intimate self knowledge of pre-planned management and exit strategies is making a big mistake. Sorry to bore everyone, I've said my piece on the subject, three times now and will not go on about again.

  • AA

    Asaf A.

    6 6 2017 15:32

    0       0

    FX Options trade OTC.. so how does a retail investor express this? GLD options and spot AUSUSD ?

  • JG

    Justin G.

    6 6 2017 15:29

    2       0

    I am confused on the part where she says the AUD behaves like a risk-off asset yet is buying puts on AUD/USD (to benefit from AUD weakness). I am assuming then when she says the AUD behaves like a risk-off asset she means it in a negative way rather than positive ?

  • SG

    Samuel G.

    6 6 2017 15:03

    4       0

    Looking forward to a long form interview of Nancy!

  • AG

    Alexander G.

    6 6 2017 14:12

    8       0

    I personally like selling cash-covered puts and covered calls on gold mining stock ETF's. The implied volatility is pretty high (40-55). The realized vol, of course, also. But if you start with a 50:50 portfolio (50% cash, 50% miners) and write (covered) puts and calls at the same time it will "automatically" make you a) sell your miners at higher prices plus collect both premiums or b) buy more of the miners (which you love anyway) at a discounted price from which you can deduct both premiums, too. Buy low, sell high. Of course, there is no free lunch, and the drawback is that after an extended period of gains you will have sold all your miners (but with nice gains, and you can continue / increase your covered put writing) or you will have spent all your cash on acquiring additional miners after an extended downwards move. In that case you can hold and wait, or keep writing calls (with the risk of losing the underlying in the initial part of a new rally).
    The value of this strategy comes from the fact that the investor doesn't care if miners go up or down - he will sell at higher prices and buy more at lower prices. You are agnostic on short-term price moves, and the option market pays you for taking this agnostic view. Losses are still possible, of course, but compared with a long-and-hold strategy you will cushion your losses with option premiums earned.

  • EF

    E F.

    6 6 2017 13:19

    0       0

    I also greatly enjoyed it. Would love to hear her take on the best way to play XAU/JPY

  • SC

    Shane C.

    6 6 2017 12:42

    1       0

    I love it. I was wondering what people thought about the fact that in risk off situations people flood capital into the US. Obviously, this helps the dollar. The same kind of people obviously still look to gold. So where can you find something negatively correlated to gold and the dollar? Awesome clip guys. I know structured notes are a difficult topic, but if you want to check out them out JP Morgan is working on building a website for retail structured note investors. I believe they have educational stuff regarding the importance of the actual creation of structured notes.

  • TC

    Thomas C.

    6 6 2017 11:46

    6       0

    Anyone here explain this in English please ? - way too complicated for my small brain "selling otc thru cash settled note call upside yield vault space" "cash settled notes gold dividends" wooahhh !! Thanks - sorry for not knowing all these Terms anyone have a phd in finance ?

  • TC

    Thomas C.

    6 6 2017 11:46

    3       0

    Anyone here explain this in English please ? - way too complicated for my small brain "selling otc thru cash settled note call upside yield vault space" "cash settled notes gold dividends" wooahhh !! Thanks - sorry for not knowing all these Terms anyone have a phd in finance ?

  • SJ

    Sophie J.

    6 6 2017 10:42

    1       0

    How would you adjust the strategy if you are Australian with $AUD in the bank?