London 29/06/2016 - Volatility levels for LME-traded options moved up in immediate trading after last Thursday's UK EU referendum and have held close to those levels since then, although business and interest has not risen significantly, traders noted.
"LME [underlying prices] have not gone overboard since [the EU exit vote] so it does not look like a major event for options just yet," one said.
Last week the UK voted to leave the 28-nation European Union (EU), a shock result that saw huge turmoil on global equity and currency markets for 48 hours. Today, the UK FTSE 100 has climbed strongly while the pound has recovered from Monday's 31-year lows. LME metals, by contrast, did not witness heavy turbulence.
At-the-money (ATM) implied volatility for front-month copper was quoted around 22.50 percent at Tuesday's valuation, settling back from the 24 percent reached on Friday. Since Thursday, the underlying market has rebounded to a near-two-month high of $4,830 per tonne.
And although option business has not increased markedly, there have been more call options transacted as opposed to puts. On Tuesday, there were 1,171 calls traded and 681 puts.
Implied volatility is a calculated pricing measure based on past performance and predicted movements in the underlying instrument.
In other metals, aluminium ATM volatility rose from around 17.30 percent a week ago to 19 percent on Friday and has since settled at some 18.75 percent. Turnovers have been fairly low-key, with slightly more puts than calls traded.
In zinc, ATM volatility rose about one percentage point to 29.40 percent on Friday and is holding at these levels now. Turnovers have also been fairly light, with puts also trading more than calls.
During extreme market conditions, volatilities can spike savagely. In copper, they reached 45-50 percent during the 1996 Sumitomo rogue trader scandal; on one July day, the copper price fell 25 percent. But volatility has been even higher - business was seen as high as 80 percent during the 1987 October financial crash.
(Editing by Mark Shaw)