Mon, Jul 13, 2009 | Jared Woodard
On the equity front, I continue to expect flat-to-downward price momentum for the summer. Volatility futures have been pricing in a higher level of implied volatility for the late summer for quite some time – a fact to which “green shoots” proponents would do well to attend. 
I want to call your attention this week to the situation in gold and oil. Crude oil futures fell from a recent high of $72.92 on June 11th to close Friday at $59.66 – an 18% decline in one month, with nearly all of that decline coming in the last seven sessions. It’s no surprise then that oil looks oversold on a technical basis,  or that implied volatility in oil spiked this week.  I’m not prepared to call a short-term bottom in oil, but I do doubt whether it will be much lower than this by August expiration. The USO Aug 28/30 put vertical can be sold for about $0.52 with the following greeks [11.06d -1.53g .43t -.83v].
The situation in gold is similar: while price action hasn’t been as dramatic, precious metals all look technically oversold and should be hitting major support soon.  Equally important is the persistent relationship between implied and realized volatility in gold over the last several months: option sellers who keep their directional exposure in line have been well rewarded. [11,12] The GLD Aug 83/85 put vertical can be sold for about $0.30 [7.5d -1.33g .43t -2.16v], but should be kept reasonably market-neutral.
Short-term S&P 500 Implied Volatility Bias: Neutral
Disclosure: may hold positions in gold and oil similar to those described above in managed accounts.