Key Takeaways with Craig
US Equities began the day (and week) in positive territory and headed higher from there. In late afternoon action the S&P 500 was up by about 1.25%, Nasdaq was up about 1.1% and the Dow was up by over 1.5%. Implied volatility in CME Group’s Equity Index options fell but remains above a 3-month, one-standard deviation move. US Treasury yields were modestly higher with the Micro 2-Year Treasury Yield future up by about 2.5 basis points and the Micro 10-Year up by about 3.5 bps. CVOL levels in CME’s Treasury options markets were little changed on the day.
In other CME markets, WTI Crude Oil futures prices continued to decline today as the December expiration was down about 3.5% to $82.50 per barrel. CVOL levels were down a bit today in the WTI Crude options market, but remain elevated. Regular readers of this column know we talk about CVOL, volatility and skew often in the context of CME options markets. There is another element of options pricing that CVOL measures called convexity, which is the measure of volatility in the out of the money options versus the at the money options. The higher the convexity in an option, the higher the volatility in the out of the money is to the at the money or, that the options market is pricing in potentially more significant price movements. The CVOL graph below illustrates the convexity in WTI Crude Oil options over the last year. The current levels are higher than they were at the beginning of the war in Ukraine and almost as high as they were during the initial months of the COVID-19 pandemic.
Looking ahead this week, there is no shortage of economic news as the FOMC meeting will end on Wednesday and Friday will bring the October Employment Situation report, along with continuing 3rd quarter earnings reports.
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