"Probably. First, some context. Here’s the one-month volatility risk premium in USO options since 2007.
Think of this as an estimate of how richly or cheaply priced options on crude oil are, relative to the actual historical volatility of the asset. Any ratio above 1.00 indicates that option buyers were willing to pay a premium above the value of the volatility subsequently exhibited by crude oil futures. As you can see, the ratio is usually greater than one. When oil prices dropped precipitously in 2008 and oil volatility exploded higher, option buyers made out quite well (the ratio dipped towards 0.75); otherwise, it has generally paid to be a net seller. Notice that the 50-period moving average of this ratio has been above 1.50 since December, which means that oil option premiums have been very rich compared to the volatility of the underlying.
Something is definitely keeping a permanent bid under options on crude – that’s not in doubt. The presumed cause is the threat of airstrikes against Iran. The chart below compares the value of the AIRSTRIKE.IRAN.DEC12 contract on Intrade against the relevant snippet of the USO 1M no-lag VRP.*
Since the start of 2012, it looks like there has been a reasonably tight relationship between the sentiment of crude options markets and that of Intrade participants. The run-up in USO VRP during late January and February coincides with an increase in the price of the airstrike contract..."
at http://condoroptions.com/2012/03/25/is-the-threat-of-airstrikes-against-iran-driving-oil-options-prices-higher/
Think of this as an estimate of how richly or cheaply priced options on crude oil are, relative to the actual historical volatility of the asset. Any ratio above 1.00 indicates that option buyers were willing to pay a premium above the value of the volatility subsequently exhibited by crude oil futures. As you can see, the ratio is usually greater than one. When oil prices dropped precipitously in 2008 and oil volatility exploded higher, option buyers made out quite well (the ratio dipped towards 0.75); otherwise, it has generally paid to be a net seller. Notice that the 50-period moving average of this ratio has been above 1.50 since December, which means that oil option premiums have been very rich compared to the volatility of the underlying.
Something is definitely keeping a permanent bid under options on crude – that’s not in doubt. The presumed cause is the threat of airstrikes against Iran. The chart below compares the value of the AIRSTRIKE.IRAN.DEC12 contract on Intrade against the relevant snippet of the USO 1M no-lag VRP.*
Since the start of 2012, it looks like there has been a reasonably tight relationship between the sentiment of crude options markets and that of Intrade participants. The run-up in USO VRP during late January and February coincides with an increase in the price of the airstrike contract..."
at http://condoroptions.com/2012/03/25/is-the-threat-of-airstrikes-against-iran-driving-oil-options-prices-higher/
No comments:
Post a Comment