Key Takeaways With Dave

By Dave Lerman
AUG 05 2020

The stock market continues to climb the proverbial wall of worry.   ADP reported that private employers added only 167,000 jobs in the last reporting period.

Economist were expecting 1.2 million!!  Johns Hopkins University reports that over 18,000,000 cases of Coronavirus have been confirmed with nearly 700,000 deaths as of today.

Yet the Dow rallied 373 points (1.39%) and the S&P 500 rallied 21 pts (.64%) and now stands less than 2% below its all time high of just under 3400. 

“Don’t fight the fed and don’t fight the tape “ as the late portfolio manager Marty Zweig used to say.   With interest rates at near zero levels (the 10 yr T-note yields a paltry

.55%)  investors are flocking to equities in search of better total returns.   The momentum of the stock rally has been quite impressive and persistent to say the least.

In commodities, Gold again surged over $32.00 to 2055 (a 1.54% gain). Even more impressive is silver which was up $1.05 to 27.08 for a 4% gain.    The Gold/Silver ratio

has plunged from 125 to 76 in just a few months as silver has substantially outperformed gold.  Implied volatility in silver options stands at approximately 60%.  One of the highest readings in the past 12 years (see percentile rankings table).  This puts implied vol in silver at the 95th percentile….indicating extremely high premiums.    Note the impact of this level of volatility on premiums, in particular the ATM straddle.   

ABOUT THE AUTHOR

Dave Lerman has spent 35 years in the futures and options markets at the CBOT and CME Group.   First as a market maker in Treasury Bond Options and then as a staff member at CME Group as the Sr. Director of Buyside Clients where he worked with CME’s largest pension fund and money manager clients.  David currently is in CME Group’s Education department where works to educate institutional and active retail traders on the derivatives markets.

David can be reached at David.Lerman@cmegroup.com

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