As volatility traders, we are constantly filtering the market for mean reversion opportunities.

While many of us may not be directionally-biased in terms of underlying price, dynamic movement in stock prices can be an indicator of volatility opportunities - or at least a place to look.

The current environment in precious metals is a good example of this phenomenon.

Looking at the historical charts of gold/silver and related products we see a definitive price trend upward in recent weeks:


The above is especially interesting due to the unique role of skew in precious metals options. While skew typically is observed in downside puts, that paradigm gets flipped for precious metals.

For gold/silver and related products skew is often reversed, with upside calls generally being richer in price (on average) than downside puts. Because precious metals are viewed as "safety assets," they are thought to have a better chance of "crashing up" as opposed to down - thus the added insurance premium in upside calls.

As we saw in the chart above, prices in the precious metals have been rallying of late. That action makes one wonder if implied volatility in this space is also rising.

Fortunately, the Market Measures team took a look at this very subject. Examining recent data, the team found that implied volatility in the precious metals space has indeed been rising alongside prices.

Going one step further, the team decided to focus their collective lens on several well-known trading products in the precious metals sector. The goal was to review historical data and ascertain whether any of the symbols looked particularly attractive for short premium opportunities.

Included in this precious metals study were the following symbols: GLD, SLV, XME, GDX, GDXJ. The backtest effectively looked at the historical success rate of short 16 delta strangles in these products going back to 2008.

After evaluating the data in its entirety, the team then re-ran the study looking only at instances where implied volatility rank (IVR) in those five symbols was above 50.

Even taking into account all instances (not just IVR > 50), the strategy produced a win rate of around 90% (or higher) for all 5 symbols:

  • GLD: 92% win rate

  • SLV: 90% win rate

  • XME: 91% win rate

  • GDX: 90% win rate

  • GDXJ: 88% win rate

Not surprisingly, when the data was filtered to include only instances when IVR was above 50, the results were even more convincing.

With precious metals in rally mode, and implied volatility in the group rising, we think this is a great episode to review in greater detail.

Even if you don't decide to deploy a live trade in this group at this time, you could mock trade one or more of the symbols using a short strangle and watch how it behaves.

Alternatively, you could look for other sectors of the market in which underlying prices are moving and see if IVR ranks look equally attractive.

For more details on precious metals, we hope you’ll take the time to review the complete episode of Market Measures when your schedule allows.

If you have any questions about any topics covered in this post please leave us a comment below or reach out at

Thanks for reading!

Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.