Key Takeaways with Craig

US Equity markets fluctuated today as Federal Reserve Chairman Jerome Powell testified in front of Congress.  Ultimately, the major US Indexes wound up down slightly on the day while implied volatility in the index options markets was little changed.  US Interest Rate markets remained active, though US Treasury yields fell today.  According to CME’s Micro Treasury Futures, we saw the following declines:

  • Micro 2-Year Yield:  -13 basis points
  • Micro 5-Year Yield:  -16.7 basis points
  • Micro 10-Year Yield:  -15 basis points
  • Micro 30-Year Yield:  -14 basis points

WTI Crude Oil futures prices continued to decline today, down about 3% today.  With today’s move, prices are down about 11% since the first week of June.  While we haven’t seen significant moves in implied volatility levels over the last couple of weeks, we have seen a bit of a shift in the skew.  The QuikStrike graph below represents the risk reversal (Implied Volatility of 25 Delta Calls minus Puts) in WTI Crude Oil options over the last 3 months.  As you can see, on June 9th, Calls were trading at about 2% over the Puts and today the Puts are trading at about 3% over the Calls. 

Remember, CME now lists Micro WTI Crude Options that allow traders to gain exposure to this benchmark crude oil price using options at 1/10 the size of the standard crude contract.  For example, at just before 2:00 PM Central Time this afternoon, the at the money strike in the Micro WTI Crude Oil option that expires on Friday (2 days from now) was the 105.75.  If a trader wished to express an opinion that the price of WTI Crude Oil would rally over the next couple of days, they could buy the 105.75 Call which was trading at about 1.87.  In US Dollar terms, because the Micro contract represents 100 barrels of crude oil, this would be $187.00; in the standard WTI Crude Oil options, this would be $1,870.00 in dollar terms.  Of course, options traders need to take into account factors other than just the price direction of the underlying future when analyzing an options trade (like volatility, time left in the option etc), but we wanted to include this very simple example to illustrate the size of the new Micro options.  

Today's Future Price Action

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