Futures Notional Values, the Crude Oil Curve and Current Index Skew
Current Futures Notional Values
Below are the current notional values for popular futures contracts. We also included their ETF approximate share equivalence, as well as their correlations to the ETFs.
Crude (/CL) forward curve
Check out the forward curve for crude—the forward curve is pricing in lower prices in the future than in the present—which is called backwardation. It isn’t so much of a “prediction,” it is more of an indication of longer-term supply and demand expectations. If you look at the options on the futures, the option market is skewed to the call side—so at least in the “short-term” the market is putting more “risk” on the upside, then it is on the downside. This makes the calls more expensive than the put.
Skew and the equity indices. We wrote some new code for analysis of the market—it shows option skew, and where the market is pricing risk.
Take a look at the S&P 500 (SPY), the options market it pricing :
- The OTM 20% away Put is 40 times more expensive then the 20% away OTM call
- The OTM 15% away Put is 20 times more expensive then the 15% away OTM call
- The OTM 10% away Put is 5 times more expensive then the 10% away OTM call
The Russell 2000 (IWM), the options market it pricing :
- The OTM 20% away Put is 11 times more expensive then the 20% away OTM call
- The OTM 15% away Put is 5 times more expensive then the 15% away OTM call
- The OTM 10% away Put is 3 times more expensive then the 10% away OTM call
The Nasdaq (QQQ), the options market it pricing :
- The OTM 20% away Put is 9 times more expensive then the 20% away OTM call
- The OTM 15% away Put is 5 times more expensive then the 15% away OTM call
- The OTM 10% away Put is 2 times more expensive then the 10% away OTM call
What can be learned in all of this? The market is currently pricing far more downside risk in the S&P 500 than to the upside. The Nasdaq is pricing in less downside risk compared to the equivalent distant call.
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Cherry Picks is written in collaboration with Michael Rechenthin, PhD, Head of Research and Development at tastytrade; and James Blakeway, CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade.
