Spotlight on Oil

Unrest in the Saudi Arabian political sphere over the weekend drove oil up more than 3% in Monday’s trading session with Brent above $64 and WTI above $57 – highs not seen since summer 2015. After nearly a year and a half of rangebound trading, global geopolitical uncertainty seems to be giving an already bullish market the confidence to run.

ATM volatility predictably jumped as well with a larger jump in WTI than in Brent:

And here are the vol curves compared to a week ago:

For non-oil traders, here’s a short breakdown of Brent vs WTI:

Brent – light sweet crude oil extracted from one of four oil fields in the North Sea. Typically refined in Northwest Europe. Contracts are listed on the ICE.
WTI – light(er) sweet(er) crude oil produced in the United States, price settled at Cushing, Oklahoma. Typically refined in the midwest and gulf coast regions. Contracts are listed on the NYMEX (part of CMEGroup).

(Both contracts are quoted in USD. Contract sizes are 1,000 barrels with a tick ($0.01) worth $10.)

Bitcoin News

These days it seems like you can’t read the financial news without seeing headlines about cryptocurrencies. Between Bitcoin Gold, Segwit2x, hard forks and soft forks, things can get confusing. Here are a few articles that you may have missed:

Are you trading Bitcoin as a financial security? Love it? Hate it? Let us know your thoughts and if there’s anything you’d like to see in future versions of QuikStrike.

The Search for Volatility

With 50.5 trading days left in the year and equity vol DOA, market participants are hunting for something to trade. Here’s a rundown of volatility levels by asset class (equities, metals, fx, energy, ags, and rates); all vol cones are for a 5-year history with expirations on the left-hand side.

Equities

E-Mini S&P 500 vol is at 5-year lows:

Metals

Gold and silver vol is near 5-year lows as well:


Copper vol shows signs of life for shorter dated expiries after testing recent highs:

FX

FX vol is middling:



Energy

Oil vol is low as WTI grinds higher:

Natural gas shows signs of seasonality:

Ags

Ags also harboring low vol:






Rates





Eurodollars

Eurodollar vol reflects uncertainty around the next rate hike:





Oil and Gold Update

Friday’s 3% drop in crude oil definitively broke below $50/barrel with open interest for WTI (as reported in the COT Report) at all time highs. Headlines cite lessening concerns regarding Tropical Storm Nate and oversupply issues. Volatility remains subdued though ahead of OPEC’s Monthly Oil Market Report on Weds followed by the IEA’s report on Thurs.

The WTI COT Report also shows that Producers – who have a natural bias to be short – haven’t been net short this little since Jan 2015 (AKA their net position, while still short, is the longest it’s been in awhile). In Brent, the Money Mangers’ net position is the shortest it’s been in our data’s history (dating back to 2008).

Funny trade in gold on Friday as well – expiring over a year from now the following trade was blocked – all new positioning:

– 7,500 Dec18 2000 calls @ 3
– 7,500 Dec18 2600 calls @ 0.15
– 15,000 Dec18 3000 calls @ 0.1

The sizes make it look like a call spread stupid (the 2000-3000 call spread WITH the 2600-3000 call spread) for when the SHTF – but that far out both in strike and expiry, who knows.

QuikVol is now included in QuikStrike

QuikStrike subscriptions – paid or free – now come with basic access to QuikVol, our platform for advanced volatility comparisons. You’ll now be able to view 1-month of data for active expirations, historical contracts, and constant maturity securities.

To check it out, login to QuikStrike as you normally would and then click on QuikVol in the upper left hand corner. The interface is the same as QuikStrike; you’ll still have access to your QuikMenu and shortcuts, and you’ll select contracts, views, report options, etc. the same way you do in QuikStrike.

 

Available Views

From QuikVol home you can select one of the following:

  • Active Expirations – analytics for currently trading contracts.
  • Historical Expirations – analytics for expired/historical contracts (active expirations are also available for seasonal comparisons).
  • Constant Maturity – ATM and delta-based skew analytics for constant maturity estimations.
  • Volatility Cones – an aggregation of historical volatilities with which to compare current levels.

Let us know if you have any questions.

QuikStrike In The News

QuikStrike got a mention in the WSJ’s article “How Traders Are Making Money as Oil Prices Go Nowhere” [paywall] by Stephanie Yang. In the article she points out that oil traders have been focused on mean-reverting (rangebound) strategies in this low-volatility environment.

She notes: “Recently, traders have been fixated on the $45-to-$55 range, where options positions are the most concentrated, according to data provider QuikStrike.” You can see this for yourself by going to Market Reports –> OI & Volume Heat Map (or OI & Settle Detail if you want a specific expiry). Paid versions can generate PDF links like this one to send to colleagues or clients.

Happy trading.

Market Update

This week starts with Jackson Hole behind us, Hurricane Harvey still playing out, and NFPs/debt ceiling concerns looming on the horizon. S&P500 ATM volatility (and put skew) has come back down to earth in spite of realized vol creeping higher while the dollar index is at the lowest level it’s seen since Jan 2016.

Energy

As of Sunday evening, according to the WSJ Hurricane Harvey has taken out ~15% of the US’ oil refining capacity as it continues its destruction and energy markets prepare for a bumpy week. WTI futures are pivoting around the new year although gasoline (RBOB) futures could end up being the more interesting story having caught a pure bid with front contracts up 5.8%:
WTI
RBOB

Gold

Thus far in 2017 gold has been unable to break $1,300 although not for lack of trying. With spot prices threatening the high-water mark again the COT report shows that managed money (AKA speculators) have reduced their short positions to the lowest absolute level since mid-Dec 2012:
Gold
Dec 2012 started a ~40% decline in gold prices so YMMV.
Longer dated constant maturity vols are near recent lows, while 7-day CM vol is hovering around average on a 1-year timeline so it appears that the market isn’t setup for any long-term surprises (with the exception of the occasional volume spike like the one on Friday ahead of Yellen’s speech):
Gold Vol Cone
Gold Volume Spike

Cross Asset Class Volatility Update

In the last few weeks volatility has returned to financial headlines with a vengeance leaving traders checking under their beds for asset bubbles and causing “panic” when VIX traded with a 17-handle for the first time since November 2016. So what’s really playing out in markets?

* note that the volatilities shown are calculated using industry standards based on the type of asset; for example, absolute levels cannot be compared between rates and metals.

Rates

In rates space historical volatility (orange) has picked up but implieds (blue) are lackadaisical. FV/5-yr, TY/10-yr, and US/bond, 30-day constant maturity series are shown respectively below:

 

Here’s a longer dated TY history:

Metals

Gold vol has actually found a bid (with silver and palladium following suit):

While platinum, thus far, is flat:

Energy

Natural Gas implied volatility is the lowest it’s been since 2014:

Although oil is off the lows of the year:

Ags

Vol has come back down in grains after an exciting month although wheat could be picking up again:

Equities

And last but not least, E-mini S&P500 vol has caught a bid:

For a little perspective of where we are currently, here’s a 5-year history of a few constant maturity series:

Like all things, low vol environments eventually come to an end, but low vol by itself doesn’t “trigger”  eruptions. Claiming that vol can uptick ahead of an event isn’t exactly going out on a limb. But I’m sure they’ll tell you they told you so next week.

New Equity Index Contracts on QuikStrike

The FTSE Russell 2000® has returned to the CME giving futures and options traders seamless access to mid-cap equities and margin offset benefits. Weekly volume has nearly tripled since the contracts were first listed on July 10th, and all positions will need to be transferred from the ICE to the CME once September expires (details are available on the CME website).

As part of the same agreement the CME has also listed contracts on the Russell 1000 (including the Growth and Value indexes), FTSE Emerging Markets, FTSE Developed Europe, and FTSE China 50.

Contract Specifications

Newly listed contracts include:

  • E-mini Russell 2000 Index
    • Futures (symbol: RTY)
    • Options
      • quarterlies (symbol: RTO)
      • weeklies (symbol: R1E, R2E, etc.)
      • EOM (symbol: RTM)
  • E-mini Russell 2000 Growth Index futures (symbol: R2G)
  • E-mini Russell 2000 Value Index futures (symbol: R2V)

The futures expirations will coincide with standard US equity index futures on the
third Fridays of March, June, September, and December.

Open Interest in Options on the Rise

If you’re looking for the best liquidity in options, open interest is picking up in the Sep quarterly and August weekly expirations as shown in the Open Interest & Settlements (under Market Reports in the Professional editions):

Feature Highlight: Commitments of Traders Report Shows Less Longs in Silver and Yen

Did you know you can access the CFTC Commitments of Traders (COT) report in QuikStrike? Last week, for example, money managers continued to short precious metals with their first net short in silver since August of 2015:

COT_Silver

 

Such a crowded short trade might be viewed as a good entry point by contrarian bulls; a situation that has played out in the last few trading sessions (note that the report is released on Fridays and reflects data from the prior Tuesday).

Similarly, leveraged short positions in JPY/USD (shorting Yen) increased 40% from the previous week to the highest absolute level of shorts since August 2015 – at the same time, this category has been shorting the USD in all other major currency pairs.

COT_JPYUSD

 

Accessing the COT Report

To access the report, login to QuikStrike. In the top menu click on “Market Reports” and then, depending on your version, click either the thumbnail with the header “COT Report” or the “Commitments of Traders” menu item.

As usual, select your product using the product menu in the upper left hand corner of the report.

You can further customize your report in the “Settings” and “History Range” drop down menus at the top of the page.

Settings

The Settings menu allows you to view data for futures, options, or both combined. You can also specify the chart type to be a bar graph (shows gross positions) or a line graph (shows net positions). Lastly, you can select the account type(s) to show in the report – note that these change in different asset classes.

History Range

The History Range menu lets you select the amount of data you wish to view; the options are 3-months, 6-months, 9-months, 1-year, 2-years, 3-years, 5-years, and all available data.