No gas in this oil rally
As we move into the end of the day on Friday, the week was punctuated by a real bout of weekend risk. Namely what will happen in the sands north of Baghdad as bad guys once again try take over a country? The Middle East has had their share of crises over the last decade but this one will be noteworthy for the lack of follow through on the part of the volatility markets.
Sure the VIX jumped from 7 year lows, but the response from the volatility markets have been less than overwhelming. Take the options in USO. There is still a pop today going into the weekend in the back month options but the Jun cycle declined today. That is tepid compared to the Syrian issues we had in the fall of 2013 and the oil issue was much less at risk.
As far as the oil markets are concerned, this jump up might be a one trick pony unless there is a severe disruption over the weekend. The jump in IV is so small that put time spreads out of the money should work if all of this noise comes to nothing. Give yourself plenty of time as the Syria issue dragged on a bit more than expected. This will probably be the same.
OptionVision™ – data from ORATS
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