Today, we're taking a step back from a specific story or research item and instead focusing on a snapshot of the current market landscape.
This is important because it's easy for traders to get lost in the details of portfolio management, and lose perspective on broader market trends.
The catalyst for this exercise are two new episodes on the tastytrade network which paint a vivid picture of recent movement in the prices and implied volatilities for a wide range of trading products.
These episodes include:
On Closing the Gap: Futures Edition, the hosts walk viewers through the price charts of interest rates, gold, crude oil, the euro, and a range of agricultural products.
Interest rates have of course been making news because short-term interest rates have been rising, while the shape of the overall yield curve has been flattening. A flattening yield curve has at times (not always) foreshadowed a recession, which is one big reason shifts in the curve (such as this) are monitored so closely.
Another important chart highlighted on the show is the Euro (/6E) which has been quietly losing steam in 2018. Heightened fear around Italian bonds, which have also been under pressure of late, may be contributing to the malaise in the Euro.
In the energy sector, crude oil has been extremely strong and recently broke through the $70 mark (on WTI). The decision by the Trump administration to withdraw from the Iran nuclear deal has certainly contributed to the run-up.
The return of sanctions on Iran means that exporting oil from the country is now a lot more complicated. Given that OPEC had already cut worldwide supplies through a coordinated reduction in production, the subtraction of Iranian oil has further constricted supply.
At the end of Closing the Gap, the hosts also feature several of the best-known agricultural futures (i.e. soybeans, wheat, and corn). The planting season recently kicked off in the Northern Hemisphere, and usually encompasses the most volatile trading months in these three products - June, July, and August.
Moving on to Options Jive, traders are treated to another important market snapshot, In this case, however, the focus is volatility - particularly implied and realized volatility.
As a reminder, implied volatility represents the current market price for volatility that is “implied” by option prices. Realized volatility, on the other hand, is the actual volatility observed in a given underlying over a specific period of time in history.
By comparing implied volatility and realized volatility, traders can better understand how much an underlying has actually been moving and compare that to the market price for ongoing volatility.
This episode of Options Jive focuses on many of the same trading products seen on Closing the Gap, but this time it’s implied volatility, realized volatility, and Implied Volatility Rank (IV Rank) that get explored.
As you might expect, the combination of these two episodes should provide traders with the information they need to stay on top of current market trends, and potentially help uncover new opportunities.
Because both shows rely heavily on price charts and volatility, we think it best to review the episodes in their entirety at your convenience, as opposed to presenting an abbreviated version on the blog.
If you have any questions about what’s currently moving, or any other trading-related topic, we hope you’ll leave a message in the space below, or reach out directly at firstname.lastname@example.org.
In the meantime, happy trading!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.