London 05/07/2016 - Aluminium traded options are expected to see the most interest during Wednesday's LME July declarations, with a cluster of high open interest for calls at strikes stretching either side of the ATM (at-the-money) level near $1,650.
For most of the other metals, the rally in the underlying market over the last week has lifted prices to levels where there is not significant exposure of open interest, although most of it is centred on calls.
"There are not that many big players in the options now, compared to 10 years ago. Nevertheless, you tend to see the prices protected and rangy ahead of a declaration and then a bit of a break afterwards," a trader said.
Meanwhile, volatility levels for nearly all metals have slipped back from the knee-jerk high-points reached in the immediate wake of the UK's surprise referendum decision to leave the European Union (EU).
LME prices have all rallied strongly over the last few trading sessions and early on Monday across-the-board multi-month highs were seen in the complex; since then, there has been a correction lower, with short-term ranging setting in.
Aluminium rose as high as $1,672 per tonne, a two-month best, and is now holding around $1,650. In July options, there are 3,262 calls open and just 125 puts at that strike. Overhead, at the $1,700 strike, there are 1,192 calls in play. On the downside there is a cluster of puts at $1,625 - 1,550 lots - with 3,675 calls open at $1,600.
ATM implied volatility for front-month aluminium is just below 18 percent against the level of some 19 percent it reached on the day after the UK Brexit vote. Implied volatility is a calculated pricing measure based on past performance and predicted movements in the underlying instrument.
In copper, the underlying market is around $4,850 at present, having retraced from Monday's two-month high of $4,960. Option open interest at the $4,850 strike is minimal at 273 lots of calls. Overhead, there are 1,782 calls and 225 puts at $4,900 while the $4,800 strike has 963 and 406 lots of calls and puts respectively in play. Volatility has dipped back to around 19.75 percent from the 24 percent peak.
For zinc, the option exposure is 1,128 calls at the $2,100 strike but nothing of note at adjacent strikes. Yesterday, the market hit a 13-month high of $2,186.50; it is now some $2,120. Volatility has slipped one percentage point to around 28.50 percent.
Nickel has seen some wide and volatile price swings in recent weeks, hitting a nine-month high of $10,410 yesterday - it is now around $10,000. But there is little in the way of option sensitivity this month. At $10,000 there are just 127 calls, with the lower strikes of $9,900, $9,800 and $9,700 only showing four, 50 and 50 lots of calls respectively.
Volatility is the exception for nickel - for the front month it is now around 32.50 percent, up from 29.50 percent.
(Editing by Mark Shaw)