The implied of 1W XAU/USD ATM contracts 22%.
The premiums of 1W ATM contracts are trading at 26.67% more than NPV, hence, contemplating this disparity with risk reversal we think the opportunity lies in writing a call while formulating below strategy for gold's uncertainty at this juncture.
3-Way Options straddle versus Call
Spread ratio: (Long 1: Long 1: Short 1)
Rationale: ATM premiums are trading 26.67% more than NPV, while implied of these ATM 1W contracts are at 22%, hence there exists a considerable disparity between premiums and vols that keeps us eye on shorting such expensive calls with shorter expiries. As a result, we capitalize on such beneficial instruments and deploy in our strategy.
How to execute:
Go long in XAU/USD 3M At the money delta put, Go long 6M at the money delta call and simultaneously, Short 1M (1.5%) out of the money call with positive theta. Shorts on call with shorter expiry reduces the hedging cost by financing the longs as initial receipts of premiums on OTM calls.
For IVs, NPV and risk reversal nutshell please refer below link: