The SPDR Gold Shares (GLD – 140.91) got tons of attention a couple of weeks ago due to a 20 point or 13% drop that occurred over the course of just two days. In conjunction with that dramatic move in GLD, implied volatility of GLD options more than doubled from 15.29 to 34.48. Since the drop of GLD and rise of GVZ these markets have drifted back to normal. GLD has actually recovered about half of the two day drop and sits in the low 140’s and GVZ has continued to drift back to ‘normal’ levels.
A couple of lessons can be learned about GVZ from the recent market action. Note the chart below. First, the futures behave in a very similar manner to VIX futures when there is some sort of spike in the index. Note right in the middle of the chart below where GVZ has the unprecedented two day run. The May futures moved higher, but not nearly to the extent of the index. This sort of price action from the futures stems from the nature of implied volatility where more often than not after a big move to the upside volatility comes back to normal levels. GVZ futures action anticipated that and actually signals lower GVZ from current levels as the futures are still trading at a discount to the index.
Second, GVZ does not have the inverse relationship to the underlying market that we often witness in equity index volatility markets like VIX. The next chart shows GLD and GVZ price action so far in April. Note the area circled in purple on the right side of the chart. GLD and GVZ move in sync with each other at times. This past week GLD was up strongly one day and GVZ rose as well. The following day GLD was down and GVZ rose again. Gold volatility is a unique market to say the least.
The other commodity oriented volatility market, Oil, just has not gotten too much attention as the world focuses on Gold. OVX did rally up on the heels of GVZ over the past few weeks and has returned to normal levels as well. The curve was slightly inverted a week ago and now is falling back into contango which is considered par for the course by volatility traders.