How can MRCI research be used to trade options?
Timing and direction of price movement are at least as important to
options traders as to futures traders. Both win if price moves
favorably. But one primary component of an option's premium is time,
passage of which makes an option a decaying asset. If prices move
sideways over time, the value of a futures contract does not change but
that of an option declines. Further, if prices move unfavorably, a
futures position can usually be rolled over into another delivery month
at minimal additional cost whereas an option eventually expires worthless.
Thus, MRCI's seasonal analysis lends itself to options trading because
the strength of seasonal research is discovering historical reliability
in timing and direction. Traders know well in advance how strong is a
market's tendency to move which way, when, and for how long.
Although there is often a direct relationship between a long call or
put and the direction of a seasonal tendency in futures, sometimes an
options trader must make certain accommodations with seasonal
strategies. For instance, options may expire in a market before a
seasonal strategy exits. In certain cases, then, an options trader
wanting to take advantage of a seasonal tendency must devise a practical
options strategy --- be it short or long an option for a deferred
delivery month. MRCI provides the research for a trader to better make
his own trading decisions.
But another primary component of option premium is volatility, a
measure of risk (for prices to move). Much like an insurance policy,
risk is directly reflected in the premium. MRCI has found that
volatility also has seasonal tendencies. For example, prices for
soybeans and corn are far more likely to move sharply during July ---
when crops are most needy, weather most erratic, but production most
determined.
An options trader can be right on price direction but, if he buys high
volatility or sells low volatility can still lose money. MRCI
volatility charts, available to MRCI Online subscribers, overlay current
historical and implied volatility levels onto a graph depicting "normal"
levels throughout the year. Daily updates available via e-mail provide
numerical details which apprise an options trader of whether and how
much volatility is greater or lesser than average. Again, MRCI provides
the research for a trader to better make his own trading decisions.
*Implied Volatility Description (IV):
Current daily level of Implied Volatility (IV) for options
on this futures contract, as derived from (implied by)
options premiums (Black-Scholes).
*Historical Volatility Description (HV):
Current daily level of 20-day Historical Volatility (HV)
for this futures contract, as calculated from futures
price movement.
*Central Tendency Description (CTHV):
Current daily level of the Central Tendency of Historical
Volatility(CTHV), the 15-year average of 20-day historical
volatility (of futures prices). Thus, CTHV is the historical
reference against which to compare IV and HV. CTHV is also
used to calculate +1 and -1 STD (Standard Deviation), between
which HV has theoretically been found 67% of the time.
For a complete description of the Implied Volatility (IV), Historical Volatility (HV), and the Central
Tendency Historical Volatility (CTHV) columns
click here,
or click on each column header for individual descriptions.
MRCI Online also provides daily, weekly & monthly volatility charts for ALL
the major commodity markets! Please visit: http://www.mrci.com/client/volatility.php to view a SAMPLE of these 3 charts.
This table is a sample from May 04, 2005. | 
