via ABN Amro - The Volatility Smile

It would all be very simple if you could classify options strategies into two categories, the strangle and the straddle.

In looking around for definitions of more derivatives strategies, I came across the 'Volatility Smile.' This is used in trading forex options. Gold bullion as an asset has one foot in the foreign exchange and one foot in commodities.

If you wanted to match charts of the Long Strangle with the weekly gold chart, you would come up empty handed, because you need to account for the parabolic move down. But as snugly as a turd in a dead cat, the parabolic gold price decline fits quite correctly with the left hand side of a volatility smile.

See if you don't agree. You need merely look at the list of variables here to get some of the gist. This paper will have to do with selling derivatives contracts to clients for Euro/Dollar funding requirements, so this is a big chunk of unfathomable information. The fact that this also has to do with spot prices makes a lot of sense for gold prices.

You can see how problematic eyeballing gold's value by arguing supply/demand or armageddon will make your life when you realize that derivatives like this make up the backdrop:

http://ectrie.nl/met/pdf/MET11-2-6.pdf

"About the authors

Marije Elkenbracht-Huizing completed a PhD in mathematics at Leiden University. Afterwards, in 1997, she started working for ABN AMRO, where she currently heads the FX and Equity group within the Market Risk Modeling & Product Analysis department."

These are nice people, and the paper is not meant as unfriendly.

BNN.ca

Frank McGhee

Frank McGhee looks a little like a cat in a room full of rockers, while the talking heads seem to be patronizing him mercilessly about his hapless situation:

http://watch.bnn.ca/the-street/the-street-june-2013/the-street-june-20-2013/#clip950978

'Avin' A WHINGE?

http://www.youtube.com/watch?v=unkIVvjZc9Y

- F6