EIA looks at “skew”… – Commodity Research Group

May 13, 2020 by Jim Colburn Leave a Comment

This month’s Short Term Energy Outlook includes a chart showing the skew in WTI options… using a Black-Scholes model! Once prices traded negative, some puts exploded in value reflecting the break down in model assumptions (that prices can’t go negative)… A zero struck put that trades for a dollar has no meaning in a Black-Scholes world… Some B-S models come up with nonsense vol numbers for out of the money puts… So, of course, the skew exploded!

Commodity Research Group (CRG), founded by veteran analyst Edward Meir, is an independent research consultancy specializing in base and precious metals, as well energy products. The Group provides research and general price analysis for these markets, along with advice to companies seeking to construct commodity hedging strategies.

Our associates bring decades of experience to the table, as they seek to help our clients understand the markets. CRG will distill the myriad of pricing variables mentioned above into coherent research that is to-the-point and tailored to a clients hedging or pricing needs. In addition, CRG is available for consulting assignments and speaking engagements. CRG does not manage money or trade for itself.

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