Key Takeaways with Craig

US Equity Indexes traded lower for most of today, though a late afternoon rally led to a mixed close, as the market awaits the announcement of the FOMC Fed Funds target rate that is expected on Wednesday at the conclusion of its July meeting.  US Treasury yields rose slightly and as did most major currencies against the US Dollar in CME’s futures markets, but the FOMC decision has the potential to move those markets as well.

Energy market price action remained active as WTI Crude Oil futures prices were up by about 2% while Natural Gas futures prices were up another 5.5%.  Natural Gas is now up by about 60% since the beginning of July and implied volatility in the Nat Gas options is trading near recent highs at about 95% for options that have 30 days until expiry. 

Given the much anticipated FOMC decision this week with market expectations of either a 75 or 100 basis point hike to the Fed Funds target rate (CME’s FedWatch tool is currently predicting a 75% chance of a 75 basis point move), we took a look at CME’s Event Volatility Calculator which seeks to isolate the impact of an economic release or event like an FOMC decision on the price of futures, using the term structure of volatility in the corresponding options market.  This tool is attributing a 56 point move in the E-mini S&P 500 futures to the announcement of the FOMC decision. 

In order to illustrate this concept, we graphed the term structure of volatility using QuikStrike below.  The term structure reflects the idea that different options expirations tend to trade at different vol levels within a single product.  The top two graphs depict the term structure in 10-Year Treasury options and E-mini Nasdaq-100 options.  You can see how elevated the implied volatility is in the options that expire Wednesday compared to the more deferred expirations.  However, the bottom picture, which is the term structure of the E-mini S&P 500 options really drives home the point.  Because we have Tuesday expirations in the E-mini S&P 500 options, we were able to show the elevated level in the Wednesday options compared to the Tuesday options which will expire tomorrow and before the announcement. 

As we’ve highlighted almost daily over the last several months here in the Key Takeaways section, CME offers Micro Treasury Yield futures that provide traders a very intuitive futures product with which to gain exposure to movements in the US Treasury Yield curve.  Next Wednesday, August 3rd, David Gibbs will be presenting a webinar that will go into detail on these products and how one might use them.  Please click here to register

Today's Future Price Action

Traders Resources

The information in the market commentaries have been obtained from sources believed to be reliable, but we do not guarantee its accuracy and expressly disclaim all liability. Neither the information nor any opinions expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts. The information on this site compiled by CME Group is for general purposes only. All information and data herein is provided as-is. Additionally, all examples on this site are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. CME Group assumes no responsibility for any errors or omissions. CME Group, its affiliates and any third party information and content providers expressly disclaim all liability with respect to the information and data contained herein including without limitation, any liability with respect to the accuracy or completeness of any data. You use the data herein solely at your own risk. All data and information provided herein is not intended for trading purposes or for trading advice. All matters pertaining to rules and specifications herein are made subject to and superseded by official CME, CBOT, NYMEX and COMEX rules. Current rules should be consulted in all cases concerning contract specifications.

Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Due to the leveraged nature of futures trading and swaps trading, it is possible to lose more than the amount deposited in a position. Therefore, traders should not deposit more funds than they can afford to lose without negatively affecting their lifestyles. A trader cannot expect to profit on each trade, and should only devote a small amount of their available funds to each trade. All references to options refer to options on futures.

Past performance is not necessarily indicative of future performance.

CME Group, the Globe Logo, Chicago Mercantile Exchange, Globex and CME are trademarks of Chicago Mercantile Exchange Inc. CBOT is the trademark of the Board of Trade of the City of Chicago, Inc. NYMEX is the trademark of the New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. All other marks are the property of their respective owners. Each of Chicago Mercantile Exchange Inc. (ARBN 103 432 391), The Board of Trade of the City of Chicago Inc (ARBN 110 594 459), the New York Mercantile Exchange Inc (ARBN 113 929 436) and Commodity Exchange, Inc. (ARBN 622 016 193) is a registered foreign company in Australia and holds an Australian market licence.

This site does not constitute a prospectus, product disclosure statement or legal advice, nor is it a recommendation to buy, sell or retain any specific investment or to utilise or refrain from utilising any particular service. Readers should consult their legal advisors for legal advice in connection with the matters covered on this site.

CME Group is the world’s leading derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

© 2024 CME Group Inc. All rights reserved.