Implied volatility in several commodity options seems to be picking up. For those using options to express views or hedge, how are you approaching this? Selling premium on the assumption of mean reversion, or buying into potential breakout scenarios?
Selling premium is tempting, but with the current geopolitical landscape, a breakout could be quite violent. I'm hesitant to put on large short vol positions right now.
Definitely noticing the uptick in IV. I'm leaning towards selling some out-of-the-money calls in commodities where I think the upside is capped, hoping for that mean reversion to kick in.
Good question. I'm actually buying some puts in a few names. If this IV is a precursor to a downside move, I want to be positioned for it.
It really depends on the specific commodity. Some have fundamental reasons for sustained volatility, others feel more like a temporary spike. I'm not painting all with the same brush.
For my hedges, I'm just rolling them over. The increased cost is annoying, but protection is protection. Not trying to get cute with vol plays on the core portfolio.
It's a tough call. Historically, elevated IV often does revert, but sometimes it signals the start of a trend. I'm staying patient, observing price action before committing.
I'm using this as an opportunity to adjust my strikes on existing long options. If IV is higher, I can often move my strike further out for the same premium, or take some profits off the table.
Anyone considering ratio spreads here? You get to sell some premium while still maintaining some upside or downside protection if things really move.