If you want to sell commodity options one particular day every week

[Brighton]

Comintel, I agree that an option trader had a large window in which to buy call options in both 1988 and 2012 (see charts in the above posts), but 2012 turned out to be far easier money if he got in at the right time, and he could sleep a lot better, too.

I'm not sure, though, about the options being under priced this year. Because of the relative smoothness of the underlying's price curve in 2012 v 1988, perhaps a 40-45 IV - with a one day spike to 51 - was a fair price.

 

[comintel]

Thanks - those are outstanding charts and they show the differences between the two years very clearly.

I guess this also shows that things are never the same the second time.

If one had traded 2012 expecting that the initial implied volatility peak would be the maximum, as in 1988, one could have lost a lot.

On the other hand, maybe this is because, as you note, IV was lower in 2012 and the price curve was smoother.

Do you have any thoughts that you can mention on how to trade volatility in the grains overall?

 

[Brighton]

Comintel - I've attached a simple chart that shows the daily IV (settlement only) for three corn and wheat options during the height of the 2012 growing season. I sometimes want to isolate IV intra- and inter-commodity and not get distracted by all the other things that can clutter a chart.

Anyway, what this chart told me is that there was no reason to panic about corn. We had an extraordinarily tight carryout situation and a really bad drought, yet the Dec and Mar IV were practically comatose and a steep discount to the Sep. The structure seemed typical of a run-of-the mill weather scare, driven by the front month where the big money and the public plays.

Within a couple of days of the July 20 or July 21 price and IV peak the fundamental news had changed, too, including an announcement by Smithfield Foods that they were importing corn from Brasil. I think that was the coup de grace and thereafter, things seemed more predictable.

I went palms out on everything: calls, strangles and puts on corn, wheat and beans but mostly corn and wheat. The last of the contracts from my selling frenzy, which lasted from late July to September, expired worthless on Feb 22nd.

This year? Who knows, but I don't think we'll see a repeat. IV in the grains and most of the other commodities I trade is at or near multi-year lows and the physical markets are well supplied. Summer weather may be a catalyst for US grains, but that's a couple of months away. I may have to start trading HLF, solar or biotech options to find some IV.

 

[comintel]

Very nice! I did notice at the time that the volatility in the deferred months died quickly......

Quote from Brighton:

Comintel - I've attached a simple chart that shows the daily IV (settlement only) for three corn and wheat options during the height of the 2012 growing season. I sometimes want to isolate IV intra- and inter-commodity and not get distracted by all the other things that can clutter a chart.

Anyway, what this chart told me is that there was no reason to panic about corn. We had an extraordinarily tight carryout situation and a really bad drought, yet the Dec and Mar IV were practically comatose and a steep discount to the Sep. The structure seemed typical of a run-of-the mill weather scare, driven by the front month where the big money and the public plays.

Within a couple of days of the July 20 or July 21 price and IV peak the fundamental news had changed, too, including an announcement by Smithfield Foods that they were importing corn from Brasil. I think that was the coup de grace and thereafter, things seemed more predictable.

I went palms out on everything: calls, strangles and puts on corn, wheat and beans but mostly corn and wheat. The last of the contracts from my selling frenzy, which lasted from late July to September, expired worthless on Feb 22nd.

This year? Who knows, but I don't think we'll see a repeat. IV in the grains and most of the other commodities I trade is at or near multi-year lows and the physical markets are well supplied. Summer weather may be a catalyst for US grains, but that's a couple of months away. I may have to start trading HLF, solar or biotech options to find some IV.