Key Takeaways with Craig
US Equity prices were mixed and little changed in late-afternoon trading action as the market digested comments from Federal Reserve Chairman Powell. Despite his comments that suggested potentially more “restriction” coming in interest rate policy, CME’s FedWatch tool was little changed from yesterday’s levels. US Treasury yields, as measured by CME’s Micro Treasury Yield futures, were down slightly from yesterday and the inversion between the Micro 2-Year and 10-Year was greater than 100 basis points at the time of this writing.
CME’s Corn and Soybean futures prices were lower by about 4% and 2.5%, respectively, as the market looks toward Friday’s release of the USDA report that will detail the number of acres planted. As we’ve written about recently, we’ve seen a rally in prices and in CVOL levels over the last couple of weeks in the midst of a drier than normal spring. We took a look at the Corn options markets from a couple different perspectives below.
- The top CVOL graph shows the CVOL level as well as the level of convexity in the Corn options market. As you can see, even though we saw a tick down in CVOL over the last couple of days (blue line), it remains elevated relative to the last several months as we enter the critical growing season. The green line in the graph depicts an increase in convexity, which is essentially a measure of the volatility in the out of the money options. The increase in convexity reflects a higher implied volatility ‘on the wings’.
- The lower graph depicts the implied volatility level of the next three expirations of CME’s “New Crop” options. These are options that expire on the next three Friday, but have an underlying future expiration in December. As you can see, the options that expire this Friday, after the release of the aforementioned USDA report, are trading at extremely elevated implied volatility levels compared to the options that expire on the subsequent two Fridays.
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