Key Takeaways with Craig

US Equity prices continued the month-to-date decline today as all four major US Indexes traded lower.  As we mentioned yesterday, the FOMC announcement on its Fed Funds target is expected tomorrow and CME’s FedWatch tool still indicates the probability of a 75 basis point hike is at about 84%.  US Treasury yields rose slightly today as the yield curve shifted a bit higher in a parallel (2s, 5s, 10s and 30s rose by about the same amount) fashion.    

In yesterday’s edition, we highlighted the term structure of volatility in CME’s Equity Index options ahead of the FOMC announcement (the term structure refers to the concept that different expirations in a given options product tend to trade at different implied volatility levels).  Following up on that, we wanted to call attention to an article by Rich Excell that can be found on CME’s website and goes into much greater detail on this concept and provides an example of a hypothetical trade.  Please click here to read the article. 

CME grains markets were active today as well with the price of December Wheat futures rising by over 7%.  We included the QuikStrike charts below to illustrate the current price and volatility of Corn (top), Soybeans (middle) and Wheat (bottom) currently (bright green line) and with a similar time to maturity in each year since 2016.  The upper portion of each graph depicts implied volatility in the options markets and the lower portion of each graph depicts the price.  As you can see, both implied volatility and price levels remain historically high in all three of these grains markets, at least as compared to each year since 2016.  To put the current level of implied volatility in Wheat in a different context, the average closing level of 30-day implied volatility in Wheat over the last 10 years is 26.7%; the current 30-day implied level is 48.6%.  

Today's Future Price Action

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