Volatility Returns

By Craig Bewick
OCT 28 2020

And just like that, volatility has returned, in spades, to the US Equity markets.  The four major US Indexes were down by about 3% as all of the uncertainty of which we’ve spoken recently seems to be reflected in stock prices.  Not surprisingly, implied volatility in the Equity Index options markets at CME Group has spiked as well. 

Equity prices weren’t the only ones moving at CME Group today:

  • WTI Crude Oil was down about 5% to about $37.5 per barrel and is now down about 10% in the last couple of weeks.  30-Day implied volatility in the WTI Crude Oil options has spiked from about 41% to 54% in the same time period.
  • Gold and Silver futures prices were down about 1.75% and 4.5% respectively
  • Soybean futures prices were down nearly 2%

The top QuikStrike graph below depicts 10 Years of Price and Implied Volatility data in the E-mini S&P 500; the lower shows the 25 Delta Call volatility minus the 25 Delta Put volatility.  As you can see, with today’s moves, ignoring the spike we saw during the initial economic shutdowns in March, implied volatility is close to the highest levels we’ve seen in 10 years or since the mortgage default-driving financial crisis in 2009.  And, somewhat predictably, Puts are trading as nearly as expensive relative to Calls as they have over the same time period, again, ignoring the March, 2020 volatility. 

Tomorrow, we have all of this to look forward to PLUS earnings reports from some of the biggest companies in the Nasdaq after the bell so stay buckled up. 

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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