If you want to sell commodity options one particular day every week

Discussion in 'Options' started by TraDaToR, Mar 1, 2013.

  1. TraDaToR


    Would you do it on Monday or Friday? What is the usual week-end effect on theta of commodity options?

    Thanks a lot...:)
  2. emg


    that world is based on variable and not fixed. if u want an answer to the question, ask mother nature




    if russia wants to go war with the U.S would they be better off attacking U.S troops on Monday or Friday?

    More than 90% of small traders lose! They just lose!


  3. run regression analysis on vol; when vol reaches 3 STD sell options. the end
  4. IOW wait for 2008 to repeat. Truly champion stuff.
  5. Brighton


    Loosely related to the above --

    It used to be that Mondays were the days when the grain markets would lock limit up or down with regular frequency during the growing season. That rarely happens anymore, even with much tighter US and global stocks, because 1) the market can trade on Sunday evenings and 2) fundamental information, including weather forecasts, is much more widely dispersed.

    That's my belief, anyway, and I think it's supported by the fact that corn and soybean implied volatility barely reached 40% during the summer of 2012, and didn't stay there very long. In the midst of very tight carry-out stocks and all the news about the worst drought in half a century, all we could get was a measly 40%.

    Contrast that with 1988. The drought was bad, but not as bad as 2012, and the US and the world were in an era of grain gluts. But the only people outside of the grain business and the brokerage business that had access to mostly text-based market news and weather reports were a limited number of large farmers who bought a satellite and subscribed to DTN.

    Had Al Gore given us the internet a few years sooner, we probably would have never seen days like this:

    All time high IV for ATM corn options: 86.81%, 13-Jul-1988

    All time high IV for ATM bean options: 72.8%, 1-Jul-1988
  6. sle


    Out of curiosity, what is the base-line front month ATMF implied volatility and it's 1 standard deviation? I would be curious to see what vol-of-vol are we talking about. For comparison, front month ATM vol in SPX is about 12-15 on average, 2008 had brought it up as high as 85.

    Go away, please.
  7. Brighton


    I have two record sets at hand, with a gap between 2001 and 2004, but they're both large and should give a fair approx of "old" and "new" values. FWIW, like the underlying grain prices, we are now at a higher plateau with IV, but the Std Dev is remarkably stable. That's the raw cut, maybe it would be different if comparing data periods of precisely equal length.

    DATA SET NO. 1

    Daily Data, file from the CBOT, 28-Feb-1985 (I think that's when grain options began trading) through 15-Mar-2001, 4053 records.

    Corn ATM front month mean IV: 21.8%, Std Dev 7.58%, min IV 8.26%, max IV 86.81%.

    Soybean ATM front month mean IV: 20.42%, Std Dev 6.82%, min IV 9.12%, max IV 72.8%.

    DATA SET NO. 2

    Weekly Data, Friday close only, 24-Dec-2004 through 22-Feb-2013, 427 records. Source: MRCI via CRB/BarChart.

    Corn ATM two front months mean IV: 32.2%, Std Dev 7.1%, min IV 16.3%, max IV 50.2% (Nov 2008)

    Soybean ATM two front months mean IV: 27.4%, Std Dev 7.3%, min IV 16.4%, max IV 50.0% (Mar 2008)
  8. As you say, this past summer, grains implied volatility never got much above 40%.

    But purchasing calls, even well into the move, would have made huge amounts of money, because the move continued.

    So it seems those options remained underpriced for a long time. I am not sure why.

    Would you agree?

  9. Brighton


    The attached file contains the daily IV from 1988.
  10. Brighton


    The attached file contains the daily corn IV, as measured by the CBOT/CBOE corn VIX for 2012 (it's front month weighted).
    #10     Mar 2, 2013