Implied before commodity reports

Discussion in 'Options' started by TraDaToR, Dec 16, 2012.

  1. TraDaToR



    Has somebody studied the effect of commodity reports on futures options implied volatility? Is it like earnings on stocks when implied vol drops a cliff once it is released ? What are the reports having a clear effect on IV? WASDE for corn, wheat, soy...? Inventories for Oil? Quarterly Hogs and Pigs for hogs?

    Thanks a lot for your help.:)
  2. On the topic of options on futures, where do any of you guys trade them besides TOS and IB?

    As to your question, the IV fall after commodity reports can be reasonably analogous to an earnings report on a stock. The IV definitely rises going into the report and falls after as one would expect. The commodity usually gaps on the report just like a stock might, and whether or not the market makers correctly priced in the magnitude of the gap is anyone's guess prior to the report. However, commodities have other factors that will lead to some reports affecting the markets and IV differently than others. Because of seasonality and changing market places a long term stream of commodity reports can't easily be compared to a long stream of earnings reports. For example, nat gas is a completely different market than it was before we discovered so much, and the grains have acted very differently this year than other years because of the drought. Now that South America is planting so many more soybeans, the daily weather outlook there can matter more now than a government report - again that was not the case years ago.

    The reports that matter to oil are the Wednesday inventories, but geopolitics, the economy, and the overall market sentiment can mean more. The nat gas storage reports on Thursday are important, but can easily be trumped by weather reports now that we are in winter. The monthly and quarterly grain reports have significant impact leading up to and during harvest, but less so after, and other county's grain markets can definitely affect ours at times. During harvest the weekly crop progress reports can matter too, and just like nat gas, weather reports are key. There was just enough rain that came just in time to save some crops this year, and avoid a complete disaster, but no monthly government report was going to tell you that.
  3. 1) Cattle on Feed....for cattle. :cool:
    2) USDA /WASDE for cotton. :)
    3) October USDA/WASDE for orange juice. :D :p
    4) Housing starts for lumber. :cool:
    5) I'm not sure what there is for coffee, sugar and cocoa. :(
    6) Non-farm payroll, PPI, CPI, Durable goods, FOMC and GDP can sometimes impact physical commodities in addition to the financials. :eek:
  4. TraDaToR


    So true. Commodities in general are a totally different market than what it was before 2007 with all the funds/ETFs seeking exposure. Volatility is much higher. Seasonality is quite dead IMO. I learned it the hard way...I know seasonal spreads that had worked for 30 years straight and now they are more like a 50/50 gamble.

    I think I will do a little study of Implied Vs Historical Vol on WASDE days.

    PS: IB for me.:)
  5. TraDaToR



    -Is this reliable for housing starts?

    -Why is October critical for orange juice?
  6. IV for USO used to go down right after the weekly EIA reports in the mid-2000's, back when oil's price was more closely linked to short-term supply and demand. Not so much now, when oil's price depends more on the dollar and the perceived future strength of the economy.
  7. luisHK


    Anyone else has input on the topic ? I was looking to diversify equity seasonal trades into commodity seasonals but this doesn't look good.

    Are you familiar with the advices from MRCI or Cordier , have they been performing that poorly over the last year/few years ?
  8. heech


    WASDE has a huge impact on grains implied vola, although that's seasonal (as others have mentioned). For beans/corn, very typical to see implied go from 20-25% to the 25-30% range a day or two before key reports. Usually, the hours after the USDA reports will see vola plunge over-correct and drop down to the 18-20% range.

    Cocoa has regular grinding reports, but not THAT significant.

    Cotton is beholden to USDA export reports as well.

    Coffee is all about weather during the "winter" in South America (our June-August). It's a little like OJ in the US. Hint of frost and implied vola + prices will surge instantly.
  9. TraDaToR


    By "seasonality is quite dead IMO", I meant seasonality as a base for a spread trade for example, like fixed date bull/bear spreads. Of course the natural crop cycle is still the same and some commodity reports have more importance than others.

    I remember "forward testing" the MRCI encyclopedia( 2005 ) spread trades on years 2006-2007-2008-2009 and being so disappointed by the early results that I stopped and started looking for my own spreads. In hindsight, I discovered mine weren't really better...LOL
  10. luisHK


    Thanks for your reply. Regarding MRCI, I read yesterday RON99 input on a different forum, and he he found as well their predictions very poor - although MRCI work might still be useful
    #10     Dec 26, 2012