What stocks have had a 52-week low?
tastytrade logo
uploaded image

Sep 18, 2017

Evaluating Opportunities in Precious Metals

By:Sage Anderson

As volatility traders, we are constantly filtering the market for mean reversion opportunities.

While many of us may not be directionally-biased in terms of underlying price, dynamic movement in stock prices can be an indicator of volatility opportunities - or at least a place to look.

The current environment in precious metals is a good example of this phenomenon.

Looking at the historical charts of gold/silver and related products we see a definitive price trend upward in recent weeks:

The above is especially interesting due to the unique role of skew in precious metals options. While skew typically is observed in downside puts, that paradigm gets flipped for precious metals.

For gold/silver and related products skew is often reversed, with upside calls generally being richer in price (on average) than downside puts. Because precious metals are viewed as "safety assets," they are thought to have a better chance of "crashing up" as opposed to down - thus the added insurance premium in upside calls.

As we saw in the chart above, prices in the precious metals have been rallying of late. That action makes one wonder if implied volatility in this space is also rising.

Fortunately, the Market Measures team took a look at this very subject. Examining recent data, the team found that implied volatility in the precious metals space has indeed been rising alongside prices.

Going one step further, the team decided to focus their collective lens on several well-known trading products in the precious metals sector. The goal was to review historical data and ascertain whether any of the symbols looked particularly attractive for short premium opportunities.

Included in this precious metals study were the following symbols: GLD, SLV, XME, GDX, GDXJ. The backtest effectively looked at the historical success rate of short 16 delta strangles in these products going back to 2008.

After evaluating the data in its entirety, the team then re-ran the study looking only at instances where implied volatility rank (IVR) in those five symbols was above 50.

Even taking into account all instances (not just IVR > 50), the strategy produced a win rate of around 90% (or higher) for all 5 symbols:

  • GLD: 92% win rate

  • SLV: 90% win rate

  • XME: 91% win rate

  • GDX: 90% win rate

  • GDXJ: 88% win rate

Not surprisingly, when the data was filtered to include only instances when IVR was above 50, the results were even more convincing.

With precious metals in rally mode, and implied volatility in the group rising, we think this is a great episode to review in greater detail.

Even if you don't decide to deploy a live trade in this group at this time, you could mock trade one or more of the symbols using a short strangle and watch how it behaves.

Alternatively, you could look for other sectors of the market in which underlying prices are moving and see if IVR ranks look equally attractive.

For more details on precious metals, we hope you’ll take the time to review the complete episode of Market Measures when your schedule allows.

If you have any questions about any topics covered in this post please leave us a comment below or reach out at

Thanks for reading!

Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.