Key Takeaways with Craig

From time to time, we’ve described the daily stock market price action as “struggled to find a clear direction”.  That is a bit of an understatement lately as the major US equity indexes swung wildly again today.  As we said yesterday, there are not shortages of potential market-moving headlines this week including an expected FOMC announcement tomorrow, ongoing geo-political tensions between Ukraine and Russia and expected earnings reports from very large technology companies this week.  When the dust had settled on today’s trading action, the equity indexes had closed broadly lower (after selling off in the final minutes of trading) and implied volatility continued to rise.   

In other CME Group markets, US Treasury yields rose according to the Micro Treasury Yield futures prices.  From 2-Year through the 30-Year, the yields rose by about 4 basis points.  During yesterday’s stock market sell-off, the CME Group Fed Funds futures had priced in a slightly lower probability for a rate hike at the March meeting but that had largely reversed itself today according to the FedWatch tool.  It is currently showing a close to 90% probability of a 25 basis point hike at the March meeting. 

WTI Crude Oil futures prices resumed their climb higher today, up by about 2.5%.  30-Day implied volatility in the WTI Crude Oil options has risen form 36% to 42% in the last couple of trading sessions. 

With all of the potentially market-moving news that we mentioned before, it is difficult to isolate the impact of each to market prices.  However, as you can see in the implied volatility curve in the E-mini Nasdaq-100 displayed in the QuikStrike graph below, the options market is certainly pricing in significant and elevated volatility in the upcoming expirations.  Specifically, the leftmost data point in the graph is tomorrow’s expiration, trading at an implied volatility of about 65%.  To translate that into dollars, we took a look at the prices in the at the money straddle that expires tomorrow in the Nasdaq-100 options.  The midpoint between the bid and offer suggests that the one-day straddle is trading at about 380 points.  In the E-mini Nasdaq-100 options, this represents about $7,600.  Remember, though we don’t have Wednesday expirations in the Micro E-mini Options, we do list Micro E-mini options on the S&P 500 and Nasdaq-100 that are 1/10 the size of the E-mini.  

Today's Future Price Action

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