Gold price rally has revived demand for call options, risk reversals show
- Gold's risk reversals are rising along with the price.
- Investors are adding bets to position for gains in the yellow metal.
Gold's recent rally has bolstered bullish expectations and revived demand for call options, which gives the holder a right but not the obligation to buy the yellow metal at an agreed price on or before a particular date.
The yellow metal broke out of a contracting triangle last week, resuming the rally from November lows near $1,475 and rose to a seven-year high of $1,681 in the early Asian session on Monday. At press time, gold is trading at $1,660 per Oz, representing a 6.27% gain on the low of $1,562 observed on Feb. 12.
The surge is accompanied by an uptick in one-month risk reversal, a gauge of calls to puts, which bottomed out at 0.85 on Feb. 12 and has risen in a near 90-degree manner to 2.30 - a sign of increased demand or implied volatility premium for call options.
The current value represents the strongest bullish bias since Jan.8. The 2020 high of 3.10 was reached on Jan. 6.