LME OPTIONS - Nickel volatility reaches 7-mth high, end-2016 business active

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Martin Hayesmartin.hayes@fastmarkets.com+44 (0) 20 7337 2148

London 12/07/2016 - Volatility levels in LME nickel traded options have reached a seven-month high around 37.40 percent due to the rise in the underlying market to its best since late-October 2015, which has sparked an upturn in business, traders said.

"We do not see too much of that ourselves - but the [volatilities] have certainly moved and you would not want to be short of vols," a trader said. 

There has been some two-way put and call turnover in the forthcoming August month as well as increased activity - mostly calls - for end-2016 options

Two weeks ago the ATM (at-the-money) front month volatility stood around 29.50 percent, snapping up to 32 percent in the immediate wake of the UK EU referendum - the country elected to leave the EU.

"There has been a lot of business in the Augusts - and it might catch quite a few people out," Malcolm Freeman of Kingdom Futures said.

In the underlying market, meanwhile, three-month nickel has risen to $10,435 per tonne today amid concerns that an environmental audit of mining facilities in the Philippines will disrupt ore shipments.

In options, 2,200 lots of September calls and 1,200 lots of November $10,000 calls changed hands two days ago. A week ago, 700 and 600 lots of front-month August $10,500 and $11,000 calls were traded, as were 500 lots of September $11,000 calls. Further on the upside, there were 1,000 lots each of calls at the $12,000, $12,500 and $12,750 strikes traded.

Finally, there were 2,000 lots of August $10,000 calls and 2,000 lots of $10,500 calls transacted at the start of last week.

Implied volatility is a calculated pricing measure based on past performance and predicted movements in the underlying instrument. In nickel, which is a high-priced metal, less liquid than the LME's main metals, volatility is often elevated - in September 2015 it touched levels of 42 percent.

The market is on the verge of a significant upside break-out if prices clear the $10,450/10,500 area, which will feed through into options by increasing the delta-hedging against the large open interest strikes that are in play for the rest of the year.

(Editing by Mark Shaw)

 

 

 

 

 



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