Cotton continues its impressive strength, but if you want to establish an options position you better use spreads because the implied volatility is almost 27% while the underlying is running less than 15%. It may be an opportunity for options sellers, but when a market is relatively stable and the implied volatility is much higher than the historical, it may just be an indicator that a large move is in the offing. December futures settled at 87.41 and the 88 Straddle settled at 832 points with 72 days left. If one believed that Cotton would remain in a range between 79.68 and 96.32 then the straddle is expensive. This can be a tough position to manage, but if the historical volatility didn’t pick up substantially and you were willing to manage the position, then it would be a good sale. To keep things in perspective, prior to August 2nd, just a few weeks ago, Cotton traded below 79.68. Also make note of Cotton’s Relative Strength Index of greater than 80.
The real moves today, however, were clearly the stock market and crude oil which gave all the bears something to look at. It seems that these markets always provide intriguing opportunities. The options skew highlights many trading opportunities. I’ve discussed them before. Feel free to contact me if you have an interest.
The Chart below highlights Tuesday’s essential information. Each day I review the information provided below and analyze the options settlements to help determine the appropriate strategies for establishing positions. A risk/reward analysis should always be considered before initiating positions.
I can be reached at 212-383-9453 or at fred.oltarsh@libanman.com for a no obligation discussion about position ideas. If you’re trading the S&P, Coffee or Crude Oil, I have options trading suggestions which, due to the nature of the options skew, might mesh nicely with your trading opinions.
The chart represents some useful information pertaining to tonight’s settlement prices. Most of the columns are self explanatory but hereis the key to the lesser known columns: RSI is the Relative Strength Index and measures a market’s overbought or oversold status. Anumber greater than 70-80 would be considered potentially overbought while a number below 30-20 might be considered oversold. The 10 and 30 HV are the 10 and 30 day Historical Volatility for the Commodity. IV refers to the Implied Volatility of the At-The-Money Option. The ATR and $-ATR refers to the 20-day Average Trading Range of the Futures Contract and the Dollar Range for the Contract . Much of this information is a simple way of analyzing Implied and Historical Volatility and is a concise review of the markets.For help interpreting the numbers or understanding how this type of analysis will help your trading call us at 212-383-9453.
FUTURES AND OPTIONS TRADING INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE FOR EVERY INVESTOR. INFORMATION IS OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT IS IN NO WAY GUARANTEED. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS.
