Reminder: Gold and Silver Option Expiration for May Is Next Tuesday

As a reminder, the Comex will have their gold and silver option expiration on Tuesday, April 26.

Due to a lax regulation of the markets by the CFTC, there are sometimes major price manipulation shenanigans associated with these events, and these sometimes during thinly traded periods of time.

Someone sent me this article. It makes a point about the calendar holidays which I had not noticed. Here is their follow up aricle.

Since much of the physical buying comes out of Asia, and most of the price manipulation seems to originate in London and New York, this could be interesting. Although the setup is there for a thin trade, it takes a look at the composition of the markets, and the actual details of the options and contracts held in balance to other things, in order to make any judgements.

I do know that quite a few specs are jiggy with their recent gains in silver. This makes a retracement possible if someone 'gets the ball rolling' as they say. On the other hand, I have seen fellows use option expiration to breakout metals and other instruments and beat the shorts mercilessly. It is hard to trade this sort of event reliably if one is not an insider.

I stopped trading on the Comex a few years ago, before I scaled back my general trading, out of sense of discouragement in the integrity of their markets. But it is hard to get away from it, since their trades feed into and affect so many other instruments like ETFs, etc. When one take a position in a short ETF like ZSL, for example, one is trading with the Comex by proxy I would imagine.

While I do not believe in 'hanging bankers' at all, I think some serious investigations, indictments, and prison terms for the guilty white collar criminals would do a great deal to stimulate the real economy by reining in the excessive fee-based taxes from the financial sector, and refreshing the price discovery and efficiency of the markets.

But the Obama Administration is reform adverse, especially while collecting its famous billion dollar campaign slush fund. You don't get that kind of money from the "Yes We Can" crowd. And most Republicans are unashamedly servants of the pigmen.

Here is a nice, concise analysis of the Obama Administration's policy from an interview with William K. Black:

Ryssdal: What about the argument, though, that the financial system is so fragile still, and these cases so complicated, that we can’t really tear things apart with substantive investigations and prosecutions because it will all fall apart again?

Black: Yeah, that’s an excellent point. We should leave felons in charge of our largest financial institutions as a means of achieving financial stability.

Ryssdal: See, that’s funny because I was expecting you to come back with — I don’t know, JPMorgan earned $5 billion last quarter. How shaky can they be?

I am now flat in my trading account, and am not sure about putting on trades for the holiday weekend.

Gold and Silver Options Expiration At the Comex This Week

As a caution, not all option expirations are created equal, in terms of the shenanigans and market moves that they precipitate.

The breakout in gold and silver came off an option expiration.

Gold and Silver Option Expiration in a Holiday Shortened Week in the US

It's that time again, another option expiration next week on November 23 for the Comex gold and silver options. And it will be a short week because of the Thanksgiving Day holiday in the states.

Generally the game is for the wiseguys on the exchange to stuff the call options buyers by driving the price below the largest groupings of calls. And if a large number of calls are converted to futures positions they like to take the price down again in the two days following expiration.

But keep in mind that the breakout in the metals was done in an expiration gambit that failed, in which the smart money was caught offsides of a failed attempt to push the price down, and fueled a sharp rally on short covering of their own.

James Turk provides a not dissimilar observation in his own way here, but much more confidently seasoned perhaps than your humble proprietaire.

So let's see what happens.

Gold and Silver Options Expiration

Those who hold in-the-money options receive long and short positions in the futures today. Sometimes they like to run the stops to test the new hands on board.

Just in case you were wondering.

The Sprott Silver Trust is pricing tonight as well I believe.

Net Asset Values of Precious Metal Trusts and Funds in an Option Expiration Week

Although there will be plenty of commentary seeking some 'fundamental' reason for this pullback in gold and silver, I was looking for it, and noted last week that this week is the option expiration for the July contracts on the COMEX.

This is the kind of weakness I like to buy in adding to the 'long gold / short stocks' hedge I am running. It takes some guts but that is why we use charts to help take the emotion out of your decision and maintain a perspective. It also helps to ignore non-sensical forecasts and book-talking from chatboards and analysts who live in perpetual fantasies that come alive periodically when the market gives them a random nod. If you really want to see the worst in human nature, become a trader.

It really is that obvious anymore. Words like 'malfeasance' or at least 'nonfeasance' in office come to mind when considering the regulators at the CFTC and the SEC, their bosses, and the appropriate oversight in the Congress.

When there is a default on delivery, as I suspect there will be, I would hope that the usual 'non-involvement' and personal incompetency defenses will not be so easily accepted by a long-suffering public.

As a reminder, the GTU shelf offering closes on June 23.

Gold and Silver Option Expiration Dates Remaining in 2010

Not all expirations are equally influential on the markets. As in the case of stocks it depends on the popularity of the contract, and of course the size and distribution of puts and calls at the various strike prices.

Investors can ignore these 'wiggles.' I tend to keep them in mind for entry and exit purposes for non-futures positions, and potential hedging in my trading portfolio.