Initial strategy of listing aluminum and zinc options

SMM News: August 10 aluminum options and zinc options listed trading, aluminum options listed on the first day of AL2010, AL2011, AL2012 and AL2101 corresponding options contracts, zinc options listed on the first day of ZN2010 and ZN2011 corresponding options contracts. In the aluminum option contract, the underlying futures position involved in the contract month is 15000 lots (unilateral). In the zinc option contract, the underlying futures position involved in the contract month is 10000 lots (unilateral).

Volatility analysis of aluminum and zinc

In option trading, volatility traders trade based on the difference between the future volatility of the market and the current volatility. Therefore, it is very important to estimate the volatility.

After entering 2020, aluminum volatility began to rise. according to statistics, as of August 10, 2020, the 30-day, 60-day and 90-day historical volatility of aluminum futures contracts were 12.60%, 16.40% and 14.79% respectively, compared with the historical volatility of the past six years. Between 50% and 75% quantiles. Over the same period, the historical volatility of zinc futures on the 30th, 60th and 90th days is 22.51%, 19.72% and 17.87% respectively. Compared with the historical volatility in the past six years, the 30-day volatility is near 75%, the 60-day volatility is near 50%, and the 90-day volatility is between 25% and 50%.

By calculating the historical daily rise and fall distribution of aluminum futures, we get that the average rise and fall of aluminum futures is 0.037%, the annualized standard deviation is 13.43%, the skewness is-0.1, and the kurtosis is 4.3; the average value of zinc futures is 0.059%, the annualized standard deviation is 18.19%, the skewness is 0.0021, and the kurtosis is 2.45.

Strategy recommendation in the initial stage of listing of Aluminum and Zinc options

According to the analysis of the historical volatility of aluminum futures, the current 30-day historical volatility is in the quantile of 11.79% mur15.94%. Considering that there is a certain deviation between the implied volatility and the historical volatility, and due to the existence of the volatility smile of the virtual option, the volatility is often higher than the flat part, so we will relax the estimated implied volatility at the initial stage of listing to a range of 10%. 18%.

The current 30-day historical volatility of zinc futures is in the position of 22.23% copyright 26.83%. Considering that there is a certain deviation between implied volatility and historical volatility, and due to the existence of a smile in volatility, the volatility of virtual options is often higher than the average part, we will expand the estimated implied volatility range at the initial stage of listing to a range of 20% and 28%.

Strategy recommendation 1: protective buy bearish strategy

The most commonly used option hedge strategy is the protective buy bearish strategy, which means that investors buy a corresponding number of put options when they already own or buy the underlying assets. Assuming that the purchase cost of aluminum is 14200 yuan / ton, choose the 14200 exercise price aluminum put option with an one-month purchase period, and by paying a certain degree of royalty, we can avoid the downside risk without affecting the upside profit.

As the buyer of the put option contract, the advantage is that while effectively avoiding the downside risk of the price, it can also accept all the profits brought about by the sharp rise in prices, while the disadvantage lies in the continuous payment of royalties.

Strategy recommendation 2: covered bullish portfolio

Another common option strategy is covered strategy, which is widely used in both commodities and equity assets as an income thickening strategy without additional risk. In the case of holding aluminum spot assets, sell the aluminum call options corresponding to the subject matter. By sacrificing the income space at the top, the underlying income is thickened by income option royalties.

Taking holding long AL2010 futures as an example, under the condition that the current aluminum market tends to be optimistic, but on the basis of the expectation that the upside space in the short term is limited, we can build a covered call portfolio by selling the equal market value call option AL-2010-C-14500,. No matter the aluminum price fluctuates or rises or falls slightly in the later period, as long as the AL2010 price does not exceed 14500 yuan / ton before the expiration date, the option premium can thicken the income of the original position to a certain extent. If aluminum prices soar by more than 14500 yuan / ton, then the gain on the futures side is bound to be greater than the loss on the option side.

The volatility of aluminum and zinc has increased recently, and the overall risk of the non-ferrous sector is higher than the historical average. The rational use of option tools is conducive to risk control.

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