At-a-Glance
Key Takeaways with Craig
US Equity prices were mixed today as the Dow and the S&P 500 wound up nearly unchanged on the day while the Russell 2000 was higher and the Nasdaq was lower. Implied volatility in CME Group’s Equity Index options was near steady from yesterday’s close.
Once again, US Treasury yields stole the financial headlines as the Micro 2-Year Yield future was up by over 12 basis points and the Micro 10-Year Yield future was up by 13 basis points, after a better-than-expected retail sales report was released. With that move, the Micro 2-Year is up 27 basis points and the Micro 10-year is up 20 basis points since the close last Monday, October 9th. This price action hasn’t been lost on the options market, as the CVOL graphs below show. The green line in both graphs show the convexity over the last six months in the 10-Year (top) and 2-Year (bottom) options. Remember, as we discussed yesterday when looking at the WTI Crude Oil options, convexity refers to the volatility in the out of the money options relative to that of the at the money. So, just like we saw yesterday in crude oil options, the market is pricing higher volatility in the out of the money options than it was for most of the summer, again, relative to the ATM. The purple line in each graph depicts the skew which is the volatility of the Calls relative to the Puts and, in these graphs, is shown in yield terms. So, even as Treasury Yields have risen, the skew has shifted toward the Puts in the last several trading days.
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