Implied volatility for the at-the-money Mar 01 flaxseed options settlements ranged between 16.43% and 17.70% for December 2000, ending the month at 17.70%. The historical volatility of the underlying Mar 01 futures ended the month at 10.90%, with a life of contract range in volatility from only 2.50% on August 9, 2000 to a high of 16.10% on October 26, 2000. As with canola, the historical volatility of the underlying futures has significant upward potential from its current levels.
Implied volatility settlements for at-the-money Mar 01 western barley options ranged between 12.82% and 23.72% over the last two months, ending the month of December at 12.82%. Within the same period, the historical volatility of the underlying Mar 01 futures also increased significantly, only to return to the lower levels observed in previous years by the end of December. The movement in the historical volatility was the result of western barley futures prices being relatively range-bound after having gone through a period of trending higher.
Uncertainty regarding plantings (new crop availability) and unpredictable old crop demand are potential sources of additional volatility in the coming months. The implied volatility observed in canola and flaxseed options suggest the market is anticipating an increase in price volatility.
