Tuesday, December 05, 2006

Cocoa Implied Volatility

...is up in the upper reaches of it's yearly range at around 29-30% at the ATM strikes with a nice volatility smile in the near expiries.

By contrast, statistical volatility has been grubbing along at about 20% for 2 months. IV's are well in excess of 10 points higher tan SV in the OTM strikes, so unless we are anticipating a sudden spike in realized volatility, it seems like a good time to me to write some options.

I wouldn't dare suggest which side to write or indeed that one should write options at all(risk disclaimers an' all that), but looking at the history of this time of year in the cocoa market, there seems to be more risks on the upside, which of course is reflected in the skews. I'll be watching to see if the resistance around about here turns out to be resistance.

I have no position here yet, just a heads up.

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