Futures Market Update – Markets and Volatility

As the summer comes to an end, we look forward to volatility returning to the market place.  Historically, the summer months are a low volume trade; however, the good old saying of “sell in May and go away” has not worked this year.  The equity index markets are at all-time highs and have seen about a 6.5 % overall increase since the beginning of May. Aside from the June 24th Brexit Vote causing unexpected volatility and a significant drop in the market, equity products remained quiet.  However, this lack of volatility and small daily ranges, does not always carry over in all futures asset classes.

Let’s take the grain markets for instance.  In the month of June, corn options traded a record average of 164,787 contracts per day, including a single day record of 407,130 contracts on the last day of the month.  Soybean options hit a record open interest of 1.4 million contracts on June 23rd, per the CME June options complex overview.  Outright soybean futures had more than a handful of days with over 60 cent ranges, some of which even hit lock limit days.  The reason behind this is seasonal.  While equity index products are typically quiet in the summer months, the grain markets are at their busiest crop growing season.  This causes uncertainty due to crop reports being released throughout the summer months.  Often times the age old theory of “buy the rumor sell the fact” psychological trade is the driver of these wild swings.  That being said, it is very important to know the products you are trading, both fundamentally, as well as, technically.

Another story of the summer has been the crude oil market.  In the last 10 years, we have seen crude as high as 100 dollars a barrel during the summer driving months.  That is certainly not the case this year.  Crude Oil hit a 15 year low this past February, and hasn’t recovered since.  OPEC members are set to discuss the market when they gather for the International Energy Forum next month, but according to two delegates, there are no plans to renew the failed push for an output freeze as stated in a recent Bloomberg article.  Nonetheless, the simple mention of freeze talks may cause the oil market to catch a bid in the coming months.

The reassuring aspect of markets and their seasonal volatility, whether high or low, is there is always an opportunity to implement options strategies into any trading condition.  The key is to look at the current implied volatility to create your options strategies.  As the summer sun sets and Q4 begins along with the reality of the election season upon us, markets will notice an increased implied volatility in the further out expirations.  Such circumstances can produce great trading environments for both intraday and longer term plays.  If you haven’t yet opened a futures account and want to take advantage of trading opportunities across all asset classes, enable futures on your OptionsHouse account.

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