Key Takeaways with Craig

Continuing with our series of tools available on CME Group’s website, today we’ll re-visit a volatility-based tool that we haven’t featured in the Key Takeaways section in some time. The “Vol2Vol” tool uses implied volatility in CME’s options markets to provide a visual representation of the amount of price movement in the futures market that the options market is pricing. We like this tool because of the amount of information it provides in one, concise place.

1) Along the top you can see the intraday volume in the particular expiration that you select in both Puts and Calls along with the current at the money implied volatility as well as the change in vol and change in the futures price.

2) Directly beneath, the red, orange and yellow boxes show the 1, 2 and 3 standard deviation price moves in the price of the futures, again, based on the implied volatility in the options market. For example, within one standard deviation, we can expect a 61 point move in the E-mini S&P 500 over the next week (we selected the option that expires in one week for our example).

3) The yellow and blue bars in the graph also depict the volume in Puts and Calls. Also, you can see the delta value of the strikes on the horizontal axis on the top of the graph. For example, the 4,250 Put, depicted by the yellow bar on the left, is trading at below a 5 delta. Many traders watch the ratio of Calls to Puts as part of their analysis and this provides a nice graphical representation of that.

4) Finally, you can see the “volatility smile” in the dotted red line in the graph. This helps illustrate the convexity of this particular option series.

Have a great night and we’ll be back tomorrow!

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