Key Takeaways with Craig

US Equity prices rallied out of the gate and remained higher throughout the trading day, led by the Nasdaq, which was up by over 1%.  Implied volatility in CME’s Equity Index options that expire 30 days from now fell with the price rally, though the volatility in the options that expire this Wednesday, after the CPI number is released, remains elevated relative to the surrounding expiries. 

US Treasury yields were slightly higher toward the back end of the yield curve and near unchanged on the day in the Micro 2-Year Treasury yield.  Despite the relatively muted price action, implied volatility in the options, as measured by CVOL, was bid up today with CVOL in the 2-Year options up by about 5.5%.  Also, in the CVOL graph below, we graphed the skew in the 2, 10 and 30 Year Treasury options (in yield terms).  As you can see, and as we’ve written about recently, the divergence in the skew between the 2 versus the 10 and 30-Year options continues.  The 30-Year (blue line) continues to trade with a Call skew, the 10-Year is near neutral and the 2-Year continues to trade with a Put skew. 

Also, we wanted to point out that CME announced today that Micro Gold Options will be launched on October 2nd.  Because these will be options on the Micro Gold futures, they will also be 1/10 the size of the standard Gold options.  To put that in perspective, if we use the current, standard-size Gold options as a proxy, the at the money Call that expires this Wednesday (2 days) is currently trading at a price of about 5.5 and the Put is trading at about 7.8.  This means that the price of a 2-day straddle would be about 13.3 points or $1,330.  Hypothetically, if a trader was able to trade the upcoming Micro Gold options at those same market prices, that same straddle would trade at the dollar value of $133.00, allowing traders to precisely manage their exposure.  

Today's Future Price Action

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