This contribution from a trader I know made sense to me. It helps to explain how the trade was set up for a sell off into the metals expiration, although I have not dug down into the numbers to test the theory in detail.
I think the fact that it occurred in rollover week facilitated a sell off. For this to have 'worked' those writing the gold and silver puts had to have been 'set up.'
Since these are generally fairly sophisticated players I had not thought of it, although I am sure they were hedged as well. Sophisticated traders are rarely purely long or short and are often involving intra-market dependencies. Still, one has to wonder if one of the big bank trading desks found a way to set up some large institutions or hedge funds, are they are often wont to do.
"What happened prior to the week of expiration was a large build up of commercial long positions. They were purchased in pairs with with puts. It looked delta neutral.
The banks sold the futures carefully creating a bear flag and then sold the balance on the break. Meanwhile the puts were kept and they minted money.
When you see a build up in longs on the commercial side it is never good in my experience, for gold and silver only.
Regards, Sabre"
