Implied volatility in gold and oil (as measured by the GVZ and OVX) has begun to collapse in the last couple of weeks, falling to the lowest levels in more than two years:
While gold has steadily moved higher since mid-December, WTI crude oil has traded within an increasingly narrow range between ~$52 on the downside and ~$55 on the upside. The relatively placid price action (realized volatility) in these two major commodities has evidently lulled options traders into a sense of complacency with traders betting that neither gold nor oil are about to make a large directional move anytime soon.
Implied volatility (volatility implied through options pricing) is an interesting animal because it will typically trend lower for extended periods of time as markets slowly grind higher or remain in a range-bound oscillation, however, there will inevitably be a sudden and violent explosion to the upside as traders rush to get long volatility when fear of a large downside market move becomes palpable.
The downside break to 2+ year lows in gold and oil implied volatility simply means that odds favor the current trends continuing, however, you can be sure that when complacency reaches an extreme an upside explosion in both realized and implied volatility will be close at hand. From my vantage point I can foresee one of these large upside moves in commodity volatility during the April/May time frame. Until then a relative calm may continue to wash over markets.
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