Implied volatility is a widely used tool in analysing the stock market, and is a useful indicator for market timing. Aside from the CBOE VIX Index (for the S&P500) there are also implied volatility indexes for several commodities (oil, gold, silver, corn, soybeans, wheat). This article examines the usefulness of commodity implied volatility for informing trading views and highlights the current trends and market implications.
What are they?
The commodity focused implied volatility indexes are put together by CBOE, and are built based on the implied volatility of options on instruments that price of the relevant commodities. For the oil, gold, and silver implied volatility indexes the source is options on ETFs, while the grains (soybean, corn, wheat) are run off CBOT options.
Conceptually, higher demand for options will raise the price for options and push up implied volatility. Thus these indexes should rise or fall depending on the level… Read More …