Using Metals Weekly Options to Hedge Event Risk
Metals Weekly options are quickly becoming a popular instrument to hedge event-specific risk as it relates to the gold, silver, and copper markets. Investors and traders need to watch for a number of economic releases and announcements that can move markets. These include the release of non-farm payrolls, Federal Open Market Committee (FOMC) decision days, as well as the release of the associated minutes, among many more. With more liquidity than ever in Weekly options, and the availability to trade each expiry day across the week, market participants have more tools at their disposal than every before to manage event risk across the nearby trading horizon.
Chart 1 – Increased activity in Gold, Silver, Copper Weekly options
Do markets move more when data is released?
Intuitively, stronger price movements on data release days could make sense: The trading community needs to readjust expectations and scenarios based on new economic data released, especially if that data contradicts investors’ expectations (which is usually captured in surveys from sell-side analysts). The release of such economic data tends to influence equities, rates and the FX markets, and, by extension, metal markets – especially precious metals, which have quasi-currency status.
Looking back over the past four years (data from January 2021 to August 2024), the average absolute daily price movement in active months of GC futures was 0.69%. On NFP release days, that number was 1.04%, almost twice as high. The below chart shows a distribution of price movements on ‘regular days’ compared to economic release days. The distribution of days in which macroeconomic data is released (in light blue) is much wider, meaning that traders are exposed to the risk of more extreme price movements, or, in statistical parlance, to ‘fatter tail risk.’
Chart 2 – Daily price movements of active months of GC futures (Jan'21 - Aug'24)
Conclusion
In summary, Weekly options available for trading on Gold, Silver and Copper futures allow traders to hedge exposure to event risk across the next 30 trading days. More information on these contracts and how to access our markets is available under the Weekly options FAQ. Bloomberg contract codes for weekly options are available on this page.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
