Key Takeaways with Craig

US Equity prices traded mostly higher today ahead of tomorrow morning’s release of the PPI number that will provide the market with another look at domestic inflation.  Once again, the small-cap Russell 2000 saw outsized price moves; this time to the upside, of about 2.4%.  Implied volatility in CME’s options that expire 30 days from now was little changed, but, as you can see in the top image below, vol in the options that expire tomorrow, after the PPI reading, is trading at elevated levels. 

2-Year Treasury Yield futures were near steady on the day, while the 10-Year was down by just about 3 basis points.  Somewhat interestingly, even on a day with little price/yield movement, implied volatility, particularly in the 2-Year options jumped.  The middle graph below shows the CVOL level in the 2-Year (orange) and 10-Year (blue) Treasury options at CME.  The bottom graph on the left is that of the skew, in yield terms, in the 2 and 10-Year Treasury options.  As you can see, in both tenors, the Calls have been bid relative to the Puts and, in the case of the 10-Year (blue) the options are trading with a slight Call skew (above 0 on the graph).  Again, because we are looking at this in terms of yield, this indicates that the options market is pricing in more risk to the upside in terms of yield. 

Other notable goings-on in CME markets are in the Natural Gas futures, where prices are the lowest they’ve been since May, 2020.  To put that in historical perspective, the last time that they were this low was just a couple months after the WHO declared COVID-19 a pandemic.    Nat Gas futures prices going back to early 2020 are graphed in the top image on the right.  This price action does not seem to have been lost on the options market either.  The lower image on the right shows that the Puts are trading as close to the Calls (in volatility) as they have in years, according to the CVOL skew measure. 

Have a great evening and we’ll be back tomorrow to wrap up the week.  

Today's Future Price Action

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