Archive | Energy

How expensive are oil options?

Monday, January 14, 2013

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WTI crude oil options are priced at a substantial premium above the trailing volatility of the underlying. One month options using the VIX methodology (OVX) were priced at the Friday close above...

Uninvestable Water

Tuesday, August 7, 2012

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Water is one of those investment themes that comes up from time to time. It seems like there are a few different stories: Delivery. People understand this story intuitively: everybody needs water, some places don’t have enough of it, and since you can move it around in bottles and pipes, water is an excludable good. Excludable goods can be profitably sold. Technology and Filtration. Water delivered where you want it does no good if it’s dirty, or if it…

Is the threat of airstrikes against Iran driving oil options prices higher?

Sunday, March 25, 2012

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Probably. First, some context. Here’s the one-month volatility risk premium in USO options since 2007. Think of this as an estimate of how richly or cheaply priced options on crude oil are, relative to the actual historical volatility of the asset. Any ratio above 1.00 indicates that option buyers were willing to pay a premium above the value of the volatility subsequently exhibited by crude oil futures. As you can see, the ratio is usually greater than one.…

Volatility Tracker: Reversion to the Trend

Monday, November 9, 2009

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Volatility Tracker for the week of November 8, 2009 I wondered last week whether we would see a return to the reflation rally or were entering a new regime dominated by mean reversion. The price action last week counts in favor of both, as we reverted to the closing highs of the prior week; I expect a more definitive answer by November options expiration. The sale of out of the money equity index puts and/or put spreads I suggested last…

The Fuss Over Natural Gas

Wednesday, September 2, 2009

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People have been up in arms for months now about the troubles at the United States Natural Gas Fund, LP (NYSE: UNG), the ETF designed to track the price of natural gas. And, as far as I can tell, rightly so: the whole point of ETFs is that they were meant to be a nearly frictionless, relatively simple alternative to the clunky closed-end funds (CEF) and managed products that our parents and grandparents had to contend with. But UNG recently…

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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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