After a stronger than expected March employment report that was released last Friday morning, US Equities staged strong and broad rallies today. Somewhat interestingly, even with the price rally, implied volatility in the options markets in the major indexes ticked higher. Oftentimes, we observe a decrease in implied volatility when the price rises, but today’s slight increase is from low levels we haven’t seen since February, 2020, so we don’t read too much into this.
Two other notable price moves in CME Group products were in WTI Crude Oil futures, down over 6% as investors weighed the effect that the “OPEC Plus” production cut ease would have and in Copper futures, which were up by about 3.7%.
As the price of WTI Crude Oil has become more volatile as of late, we wanted to see how the current implied volatility and skew levels compared to recent history. Using QuikStrike graphs, we looked at the May contract from 2014 to present (we didn’t include last year’s because the extreme volatility appears to be an outlier on the graph). As you can see in the bright green graph in the top graph, implied volatility is near the top end of the range in the years since 2014. The bottom graph, which depicts the implied volatility of 25 Delta Calls minus that of the Puts, illustrates that Puts are trading as much relative to Calls as they have in any year since 2014. In fact, with 10 days left until expiration, the Puts are trading nearly 11% over the Calls.