Natural gas volatility is back!

by Jim Colburn • Tuesday, November 20, 2018

Here is the long term chart of at the money implied vols for natural gas using the second nearby option:

 

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Investors hit by natgas swings… Reuters

by Jim Colburn • Tuesday, November 20, 2018

My bias is toward buying options… Here is Reuters describing what happened to a company actually called OptionSellers.com in the natural gas market… Natural gas vol settled over 100 in January…

”Natural gas posted its biggest one-day percentage gain in eight years on Wednesday, only to follow with its largest one-day loss in 15 years the next day.

Natural gas volatility “caused liquidity stress” for commercial and institutional customers of certain futures merchants, INTL FCStone said in a statement.

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ICE CO2 Allowance Futures/update…

by Jim Colburn • Monday, November 19, 2018

Updating an old post:

 

Here is the chart, from Barchart.com:

Reuters has this:

”Carbon permits traded under the EU’s Emissions Trading System (ETS) have become the best performing commodity this year, almost trebling in price to over 21 euros ($25) a ton since January on the back of stronger energy prices and measures to reduce supply.

The ETS, which charges power plants and factories for every ton of carbon dioxide they emit, has suffered from excess supply since the financial crisis which dragged prices down to lows of 2-3 euros a ton.

Now at 10-year highs, stronger carbon prices make it more expensive for European utilities to burn fossil fuels, encouraging a shift to cleaner energy sources.”

 

 

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Gasoline vs. diesel cracks.. EIA

by Jim Colburn • Friday, November 16, 2018

Gasoline vs. diesel crack spreads from the EIA’s This Week in Petroleum, here

“Gasoline crack spreads (the price difference between crude oil and gasoline) at key refining locations across the globe have fallen recently, while diesel crack spreads have remained relatively high. In the United States, gasoline crack spreads are declining not only because demand for gasoline has fallen more rapidly than what is seasonally normal, but inventories have also remained high. The crack spreads in the Amsterdam-Rotterdam-Antwerp (ARA) region of Europe and in Singapore, two global refining and distribution hubs, suggest markets in these regions are experiencing similar trends (Figure 1).

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Long term natural gas implied vol chart…

by Jim Colburn • Thursday, November 15, 2018

This is my own data series based on at the money options, using the second nearby option… January settled at 100.8 yesterday:

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Natural gas implied vol hits 100…

by Jim Colburn • Thursday, November 15, 2018

Here is a snapshot from barchart.com which shows implied volatility settling at 100.3 for the Jan contract!

 

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A tale of two skews…

by Jim Colburn • Wednesday, November 14, 2018

Natural gas and crude oil prices are moving in opposite directions… in a hurry… Implied vol for both have moved up sharply, with natural gas settling yesterday at 68.8 and crude oil at 47.7… Both of these were trading at around 25 in October…  Using the CME’s Option Settlement Tool, here, we get a sense of how out of the money puts trade relative out of the money calls by looking at the skew… The skew is the difference between the implied volatilities of higher strikes vs. lower strikes… In crude oil, producers like Mexico, buy puts as price insurance… This causes out of the money puts to trade at higher vols than out of the money calls…  Here is a snapshot of oil and natural gas implied vols across strikes… Note that oil is very skewed toward the puts and in natural gas the skew is toward the calls… For example the the $3.50 strike settled at 62.5 while the $4.80 call settled at 75.5… In crude, the $51 put settled at 52.7, the $61 call at 42.1… Theoretically, if the options model from which we calculate implied vol were a true depiction of reality, implied vol across strikes would be the same…

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Updated vol chart, WTI…

by Jim Colburn • Wednesday, November 14, 2018

Implied volatility shot higher yesterday… This chart uses settlement data from at the money, second month options…

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Record option volume in crude oil…

by Jim Colburn • Wednesday, November 14, 2018

The CME shows a whopping 702,918 WTI crude oil options trading yesterday, which (by my records) breaks the previous record of 579,935 on November 30th, 2016!!!  Put volume dominated with 451,251 trading vs. 251,667 calls…  December puts were very active which makes sense as these go off today…  Open interest increased more in calls (69,512) than in puts (37,436)… And most surprisingly, the most active call was the Dec2020, $100c!  Implied vols exploded to 47.7, up from 32.6 (basis atm, Jan)…   Here is the CME’s Most Active Strike tool with details:

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The IEA piles on…

by Jim Colburn • Wednesday, November 14, 2018

This morning’s release of the International Energy Agency’s Monthly Oil Report, here, shows what OPEC and the U.S.’s Energy Information Administration  already reported in their monthly reports for November (OPEC’s monthly report is here, the EIA’s is here)…

This is from the IEA’s summary:

“In last month’s Report, we noted that since the middle of the year oil supply had increased sharply, with gains in the Middle East, Russia and the United States more than compensating for falls in production in Iran, Venezuela and elsewhere. New data show that the pace has accelerated, and this higher output, in combination with Iranian sanctions waivers issued by the US and steady demand growth, implies a stock build in 4Q18 of 0.7 mb/d. Already, OECD stocks have increased for four months in a row, with products back above the five-year average. In 1H19, based on our outlook for non-OPEC production and global demand, and assuming flat OPEC production (i.e. losses from Iran/Venezuela are offset by others), the implied stock build is currently 2 mb/d.

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