US Equity indexes began the day in positive territory but sold off rather sharply after news reports that the capital gains tax could be raised substantially hit the wire. In fact, between about Noon and 1:00 PM in Chicago, E-mini S&P 500 futures fell by about 50 points, E-mini Dow futures fell by almost 400 points and E-mini Nasdaq-100 futures fell by over 200 points. Implied Volatility in the index options markets rose as the prices fell.
In late afternoon trading, US Treasury futures prices were up just slightly at the long end of the curve and CME Group metals markets were mostly lower. WTI Crude Oil futures prices were slightly higher and, while we risk sounding like a ‘broken record’, CME Group Grains markets were rallying again. Yesterday, we talked about how Corn, Soybeans and Wheat prices were at or near multi-year highs and that continued today. Corn prices were up by over 4%, Wheat by more than 5% and Soybean by over 2.25%. Additionally, implied volatility continued to rise in the grains options markets. Finally, the Calls have been bid relative to the Puts in the Corn and Wheat options, though has fallen a bit in the Soybeans. In fact, you have to go back almost two years to find a volatility environment in Wheat options wherein the Calls were trading at this much of a premium to the Puts, as you can see in the QuikStrike Risk Reversal graph below. As we said yesterday, we’ll continue to monitor CME Group grains markets as we approach the WASDE report on May 12th.