US Equity Indexes bounced back a bit today while volatility in the options markets declined. The Nasdaq, which has underperformed recently, led the gains and was up nearly 1.75%. The back and forth action in Treasury futures prices continued as prices rose today (yields fell) after they fell yesterday following the release of the FOMC meeting. The market continues to look for clues about potential monetary policy and whether the higher inflation numbers we’ve seen recently are indeed, ‘transitory’.
Commodity markets at CME Group were mostly lower today as WTI Crude Oil prices fell by over 2%, Natural Gas prices were down by about 1.5% and most grains futures prices were lower with the exception of Corn, which was up slightly. Finally, the US Dollar was lower versus most major currencies and is trading near 3 month lows against several different currencies.
Bitcoin and Ether futures prices remain volatile as they attempted a rebound earlier in the day before giving back much of those gains later. Bitcoin futures prices were near steady from yesterday’s close and Ether was up by about 7%. Not surprisingly, implied volatility for Bitcoin options with 30 days until expiration remains high at over 105%. Somewhat interestingly, we haven’t seen this much skew in the Puts in the last year. In other words, looking at the 25 Delta Risk Reversal, the Put implied volatility is trading 15% higher than the Calls as Put sellers demand more premium against further downside price moves. This is illustrated nicely in the QuikStrike graph below.
As we’ve mentioned several times recently, CME Group now lists Micro Bitcoin futures which represent a notional value of 1/10 of one Bitcoin. The adoption of the new product has been swift, underscored by volume of nearly 95,000 contracts yesterday. As with all products at CME Group, Bitcoin Futures offer benefits such as capital efficiencies, CME Group Clearinghouse risk management, the ability to easily “go short”, among others. Expounding on the “ability to go short”, futures products do not have locate requirements nor borrow costs that are usually associated with shorting securities such as equities; rather, if one desires to short a given market, they simply sell it and post the required margin. CME Group has put together a short “How to trade Micro Bitcoin Futures (MBT)” paper that we’d encourage all of our readers to check it out here.
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