US Equities were rather directionless and little changed today while volatility in the options markets continued to trade at relatively low levels compared to the last 6 months. US Treasury futures were also little changed as the market looks toward Friday’s release of the August Employment report. According to the CME Group Event Volatility Calculator, there is not as much of a premium in the options that expire Friday relative to some of the more deferred expirations as there was earlier in the week. The calculator is no longer pricing in a futures price impact in the E-mini S&P 500 and Nasdaq-100 markets, is calculating a .25 point move in the US T-Bond versus a one point move earlier in the week and a 15 point move in Gold versus 20 previously.
Natural Gas futures prices continue to move higher, up another 5.3% today and reaching new multi-year highs. 30-day implied volatility in the Nat Gas options markets rose as well and is trading at levels not seen since mid-February. Because Nat Gas tends to be a cyclical product, we looked at the October expiration currently and versus the years going all the way back to 2011. As you can see from the green line in the upper QuikStrike graph below, volatility is just about as high as it’s been with 26 days until expiration as it has in any of the last 10 years. Perhaps more interesting, there hasn’t been a Call skew like this with 26 days until the October expiration in any year since 2011, as you can see in the top portion of the lower graph below, which depicts the volatility of the 25 Delta Call minus that of the Put (Risk Reversal). The 25 Delta Calls are currently trading about 8% over the Puts and, as the graph shows, in most years, the Calls and Puts have been trading near the same volatility or the Puts have been trading over the Calls at this point on the calendar. Finally, the bottom portion of the lower graph shows that the price of October Natural Gas hasn’t been this high since 2011.