Expiring Monthly on Commodities

The November issue of Expiring Monthly has a large feature section on commodity options, and I think this is the most thematically unified issue we’ve published to date. The whole issue is a good read, in my opinion, but I thought I’d mention some highlights:

  • In the feature article, “The Volatility Risk Premium in Commodity Options,” I explain the concept of the volatility risk premium, review some literature identifying the presence of this premium in options on commodity futures, and present some empirical results confirming the same. I conclude that traders who are comfortable with the concept of being net sellers of equity options will find that similar opportunities exist in commodity markets.I won’t give away the best parts, but let me mention one interesting finding, which is that the annual Sharpe ratio from consistently selling volatility on oil and gold was higher in many cases than the result from doing the same on individual equities.
  • Bill Luby discusses the implications for gold, silver, and copper of surges in options volume – using options here as an indicator for taking directional trades.
  • Adam Warner notes that recent highs in silver have been accompanied by high volatility.
  • CME Group recently launched volatility indexes based on crude oil and gold option implied volatility, as well as futures contracts on those indexes. In my column for November, I review the specifications of those contracts and prospects for future trading strategies employing them.
  • Leaving the commodities space, Mark Sebastian remarks on the importance of using order flow to understand market sentiment and structure positions, and Mark Wolfinger follows an iron condor trade using weekly SPX options.

The full table of contents is below. You can visit Expiring Monthly to subscribe, and thanks to all of the readers here who have already subscribed. We’re always interested in feedback and questions from readers.

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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