Implied Volatility

The Power of the Implied Volatility (IV) Charts

Look at the Implied Volatility Chart and the futures price. What does this tell us? SUGAR Sugar has been in a bull market since 2004 and continues to move higher. As worldwide demand for sugar continues, particularly with the pressure for alternative fuels such as ethanol, we can expect the previous highs to be tested over the next few years. Sugar falls within the opportunist implied volatility area of 19% to 20%. Sugar prices traded all the way down to 2½ cents per lb during 1985. As sugar prices started a new bull market, the 19 cents per lb (25 year high) resistance level has been taken out in 2006 (figure 2). Sugar prices are currently experiencing a pull back once the implied volatility increased to over 100% (from 25% to 52%) – figure 1

Figure 1: Sugar two years implied volatility chart. This helps explain the current bull run in sugar.

Figure 2: Sugar May 2006 daily futures prices. Following a 100% increase in implied volatility, sugar prices have pulled back.

Repeatable Patterns

“If there is a repeatable pattern, the market cannot be random. If it is repeatable, it must be tradable. All we have to do is build a trading and money management plan to take advantage of this type of movement." -- Keith Cotterill

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Implied Volatility Article

I have written a comprehensive article on this subject with numerous examples and this has been published in the July 2006 edition of the world respected magazine "Technical Analysis of Stocks & Commodities." Click The Magazine Cover Above To Read My Published Article.