It appeared that things were not getting any worse in Iraq (or anywhere else that oil comes from last week) and the results was a lack of follow through to the upside for oil futures and the United States Oil Fund (USO – 38.98). That sort of price action following a run up in the price of oil usually results in a little compression of implied volatility of the associated option prices. That’s exactly what we got last week in the CBOE Crude Oil ETF Volatility Index (OVX – 16.44).
With a few exceptions the price of gold has been in a fairly defined range for some time. More often than not means that the SPDR Gold Shares (GLD – 126.66) has closed in the 120’s over 80% of trading days in 2014. For those keeping score the exact number is 102 of the 123 trading days in 2014. The chart below shows GLD this year for a visual interpretation.
With GLD mostly range bound the implied volatility of options on GLD remains at relatively low levels. GVZ drifted lower last week which has become a regular pattern in 2014.
The curves show a little divergence these days. The GVZ curve seems to indicate more of the same with respect to a lack of volatility. The OVX curve shows a little extra risk being priced in when focusing on the July futures. That contract expires on the open July 16th so time will tell if the extra premium in the July contract is justified or not.