- The CME's short-term options have been making headlines of late, and rightfully so given the explosion in trade volume during June.
- These options have proven to be a good hedge and or play during weather markets in ag production markets, as well as around government reports.
- The variety of reasons traders establish options again show us why it is misleading to focus on CFTC Commitments of Traders reports that include options positions.
This past weekend I saw a piece from Bloomberg talking about the explosive growth in short-dated options at the CME. Much of this has been due to “prices moving sharply depending on the weather”. According to the piece, “These products, which expire weekly or in different months than traditional contracts, accounted for a record 22% of all options transacted in June”. A bit later in the piece, one of the best option traders I know, Patrick Quaid, was quoted saying, “Options are the best way to hedge your exposure give the cost compared to futures during periods of high volatility like what we are seeing now”. There is much to unpack here, so let’s get started.
