Wti Crude Oil Prices Rise; Volatility Falls

By Craig Bewick
APR 01 2021

US Equity and Treasury prices rallied to begin the April trading while the US Dollar fell versus most major currencies.  Commodity futures prices were active at CME Group again as grain futures prices were mostly lower, metals prices were higher and energies, particularly WTI Crude Oil futures prices, rallied again.  The rally in WTI Crude Oil comes after a group of oil producing countries, sometimes referred to as OPEC+, agreed to gradually curb their production cuts beginning in May. 

It’s kind of interesting that life has kind of imitated our March 19th “Question of the Day”.  If you remember, we framed our question around the impact that such things as OPEC can have on implied volatility in the WTI Crude Oil options market.  As the blue line in the QuikStrike graph below shows, 30-day implied volatility dropped from about 46% yesterday to 37% today, after the decision was announced.  Of course, we exaggerated the implied volatility drop in our question earlier this month to emphasize our point, today’s move does underscore the idea that one has to be aware of the volatility environment in which they are trading options and the different potential news and numbers that can impact those levels. To put that volatility move in some perspective, the current price on the May WTI Crude Oil At The Money straddle at about 37% volatility is about 3.62 points, or $3,620.  If we plug yesterday’s volatility level into a theoretical pricing model and leave all other elements constant, this same straddle, with about 14 days until expiration, would have a theoretical value of 4.4 points, or $4,400. 

In observance of the Good Friday holiday, we will not be publishing In FOCUS tomorrow.  We wish all of our readers a happy and safe extended weekend and we’ll see you on Monday for the first full week of second quarter trading!

 

 

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. 

Connect with Craig at activetrader@cmegroup.com

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