US Stock Indexes were broadly higher today as volatility continued to decline ahead of tomorrow’s release of the Labor Department’s January employment report. In other CME Group markets, Gold futures prices declined another 2.5% to under 1,800, WTI Crude Oil prices were up another 1.5%, Longer term US Treasury futures prices were down slightly and the US Dollar was higher against most major currencies.
As mentioned, tomorrow, the US Department of Labor will release the January employment report which is a report that, historically, has had market moving potential. However, when we look at the CME Group Event Volatility Calculator, which seeks to isolate the impact on futures prices that a specific economic release will have based on the term structure of volatility, it does not look like the options market has priced as much of a premium into the options expiring tomorrow versus nearby expirations as we’ve seen in the past. As you can see in the top portion of the top image below (which is an excerpt from the volatility calculator), the options market is pricing in a 22 point move in either direction in the E-mini S&P 500 futures as a result of the release of the jobs number. The lower (QuikStrike) image depicts the volatility curve of the E-mini S&P 500. As you can see in the far left, the option expiring tomorrow is trading at just a slightly higher volatility level than the next expiring option.
But... as they say in sports when there’s an upset of a favorite, ”that’s why they play the game” so we’ll be back tomorrow to see if the options market was right about the jobs number impact and report on CME Group market reactions to any other news we might get.