Our CRG colleague, Bill Perlman, compared implied and historical (realized) volatility for WTI through the craziness of this year…
The red line is the futures price (right side), the blue line is implied minus historical (left side)… After the sharp price decline due to the disastrous OPEC meeting in early March, we see that historical vol moved sharply above implied, but on the next price move down, implied soared over historical… The spike was the day after we saw -$40 oil, that is, the day the option model died (otm put values exploded)… The price rally pushed implied vows back below historical… And now, implied is over historical…
So, it is possible we lost some option sellers? Maybe… Currently, the vol difference is around 8 point, implied over…As trading ranges have narrowed, one might have expected implied vol to lead, but we seem to have found support around 40%… After an incredibly tumultuous time, it makes sense that option sellers would want to socially distance themselves from these markets…
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