Thursday, August 28, 2008

Gustav and the Oil Volatility Index (OVX)

Since first becoming a tropical depression on the morning of August 25th, Gustav became a tropical storm, then a hurricane, and is now back to being a tropical storm – at least for the time being. Most models have Gustav reaching hurricane strength again later today, perhaps as soon as the next National Hurricane Center (NHC) update, which is only a half hour away.

If anyone is interested in watching a movie of the evolution of Gustav and the evolution of the five day forecast cone, I can highly recommend the Gustav graphics archive at the NHC web site.
At least as interesting as the changing fortunes of Gustav and predictions for Gustav’s future has been the market’s reaction to crude oil and natural gas prices. In the graph below, courtesy of StockCharts.com, I have captured the change in crude oil prices (via the USO crude oil ETF) as well as the change in the new ‘Oil VIX’ (OVX) that was recently launched by the CBOE. Note how volatility (the candlesticks) has generally followed the underlying up and down, though it has remained elevated as oil prices (the gray area chart) trended down this morning.

Those who are looking at options plays on oil and gas are likely to see long positions facing an uphill battle against time decay in the current highly speculative environment. As a result, spreads and short volatility plays should look more attractive as alternatives.

1 comments:

Anonymous said...

nice to be here vixandmore.blogspot.com admin discovered your blog via Google but it was hard to find and I see you could have more visitors because there are not so many comments yet. I have discovered site which offer to dramatically increase traffic to your blog http://traffic-for-your-website.com they claim they managed to get close to 4000 visitors/day using their services you could also get lot more targeted traffic from search engines as you have now. I used their services and got significantly more visitors to my blog. Hope this helps :) They offer best services to increase website traffic at this website http://traffic-for-your-website.com
To your success James

DISCLAIMER: "VIX®" is a trademark of Chicago Board Options Exchange, Incorporated. Chicago Board Options Exchange, Incorporated is not affiliated with this website or this website's owner's or operators. CBOE assumes no responsibility for the accuracy or completeness or any other aspect of any content posted on this website by its operator or any third party. All content on this site is provided for informational and entertainment purposes only and is not intended as advice to buy or sell any securities. Stocks are difficult to trade; options are even harder. When it comes to VIX derivatives, don't fall into the trap of thinking that just because you can ride a horse, you can ride an alligator. Please do your own homework and accept full responsibility for any investment decisions you make. No content on this site can be used for commercial purposes without the prior written permission of the author. Copyright © 2007-2013 Bill Luby. All rights reserved.
 
Web Analytics