Weekly Options on Grain Futures

Shorter-dated options have become more popular in the grain and oilseeds markets. While they remain tied to (or derivatives on) the common underlying futures contracts, they have shorter tenor or maturity dates than the regular options that are typically listed for a year or more prior to expiration. The shortest common tenor are “weeklies”, so named because they have expiration dates for weeks that do not have regular nor serial options expiring, generally on Fridays, and they generally trade for three or four weeks. The value of weeklies can be lower than regular options because of the shorter tenor, and higher because of a volatility risk premium. Weeklies are touted as useful for positioning around major USDA reports. Empirically, this would be reflected in differences among the implied volatility, realized volatility and spot volatility of weeklies and regular options. The implied and realized volatility levels are higher in weeks that contain major USDA reports. The implied and spot volatility explain realized volatility, but at degrees that vary depending on the timespan considered. The results suggest that the weeklies contain information about short-run price behavior that is not fully explained by regular options.