Energy Volatility And Skew

By Craig Bewick
SEP 09 2020

What a difference a day makes… today looked like a bit of a mirror image of yesterday as US Equity Index and WTI Crude Oil futures prices rallied and US Treasury futures prices declined (higher yields).  Implied volatility in both the E-mini S&P and Nasdaq-100 options markets came down fairly substantially, though, particularly in the Nasdaq-100, remains elevated versus the last three months. 

We thought the recent moves in WTI Crude Oil price and volatility were worth noting today.  As you can see in the QuikStrike graph below,

  • Futures prices have fallen since the beginning of September (though rallied today) as you can see in the yellow line
  • At the money volatility has risen (though declined today) as noted in the green line
  • Perhaps most notably, the Puts have been bid versus the Calls as you can see in the blue line.  This depicts the 25 Delta Risk Reversal which is a graphical illustration of the implied volatility in the 25 Delta Calls minus that of the Puts.  On September 1st, the 25D Calls were trading at an implied volatility 3% lower than the Puts; today, that difference has risen to 13.4%

 

ABOUT THE AUTHOR

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. 

After 8.5 years with WH Trading LLC, Craig returned to CME Group as the Director, Client Development and Sales, working to educate and promote futures trading. Craig currently writes for InFocus Options Corner.

Connect with Craig at activetrader@cmegroup.com

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