This Week in Gold and Oil Volatility – 6/13/2014

Everyone has been asking about volatility (or lack thereof) in 2014. It has kept me busy explaining why implied volatility in the stock market has been relatively low this year and how it has been justified. However, for those looking for volatility you need not look much further than the chart below. With the political landscape quickly changing in Iraq the price of oil has broken out to the upside and so has the CBOE Crude Oil ETF Volatility Index (OVX – 19.47) which was up about 35% this past week as oil futures climbed over 107 on Thursday last week. The situation over there is developing and this just may be the beginning of an interesting summer for energy traders.

OVX PA

Gold on the other hand is the calmer of these two markets. Based on the SPDR Gold Shares ETF (122.96) price action it appears a new support level is developing around 120.00. Range bound markets have very little historical volatility and that can result in low implied volatility. GVZ is already indicating a range bound market for GLD over the next few weeks. Although we do know from history and related markets (see above) that the situation can change very quickly.

GVZ PA

Both June OVX and GVZ futures and options settle on the open Wednesday morning. With only two trading days remaining until expiration the June OVX contract closed Friday in line with the underlying index and it could be an interesting couple of days going into settlement.   Also, I checked the options and there is some open interest in the 18 and 19 puts that expire on Wednesday. Someone may be hoping for a dip in OVX this coming week. The June GVZ contract went out at a pretty hefty premium relative to the index. Across the board June settlement is shaping up to be something to keep an eye on.

GVZ OVX

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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