Implied Vol In Cmeg Equity Index Options...

By Craig Bewick
JUL 20 2020

A relatively quiet day greeted the trading week as the Nasdaq rallied by over 2% while the Dow erased early losses to finish near steady on the day.  Other CME Group  markets were similarly little changed as Gold futures prices were up by less than .5%, WTI Crude Oil futures prices were nearly unchanged and the US Dollar was just slightly lower versus most major currencies.  US Treasury futures prices were also close to unchanged through the 10-Year, but the US Bond and Ultra T-Bond futures prices did rise a bit. 

Implied volatility in CME Group Equity Index options dropped with today’s price rally and, if you look at the current levels versus the spike we saw in February into March, appears to be trading at fairly low levels.  However, when we look at it in a more historical context, we see a different pictures.  The QuikStrike graph below shows August E-mini S&P 500 options each year since 2014.  The yellow line in the graph represents this year.  As you can see, with 42 days until expiration, the current implied volatility is higher than it was with similar days until expiry in any year since 2014.  Interestingly, the bottom part of the graph shows you the price is also higher than it was in any of those years. So, as the race for a COVID 19 vaccine and the debate regarding re-opening vs re-closing continue, options sellers continue to demand higher premium levels versus historical norms. 


Craig Bewick has spent 25 years in futures and options markets, starting at CBOT and CME working in risk management, regulatory, technology, product management and client development. 

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