heatingoil-crude spread vol

yetanotherquant · December 7th, 2009, 2:29 pm

The realised heatingOil-crude spread vol seems to dropped remarkably over the last year. What is the reason for such a fundamental change in the HO-crude relationship? Thanks for the input.

Stale · December 7th, 2009, 4:40 pm

Hi, Just a silly thought that you probably already considered:Could large stockpiles/breakdown in heatingoil demand do this? Doesen't seem like oil has lost it vol, so what's going on in with the heating-oil vol?Stale

yetanotherquant · December 7th, 2009, 7:24 pm

I guess oversupply of heatingoil definitely could do this, but could anyone else verify this? Indeed, crude hasn't lost it's vol..

Stale · December 8th, 2009, 4:40 pm

Hi there,could this http://tonto.eia.doe.gov/oog/info/hopu/hopu.asp be interpreted as saying that the stocks are large? If the stocks are not the reason, then some other buy-side affect should explain it?S

yetanotherquant · December 8th, 2009, 8:26 pm

Thanks. Does look like the heatingoil stockpiles have increased a lot, and might explain the lower crack spread vols. Being new to this, I guess it's a bit of a surprise to me that crack spread vols are really driven so much by fundamentals - how do people hedge spread vol positions then?

CommOddity · January 13th, 2010, 9:20 am

QuoteOriginally posted by: yetanotherquantThanks. Does look like the heatingoil stockpiles have increased a lot, and might explain the lower crack spread vols. Being new to this, I guess it's a bit of a surprise to me that crack spread vols are really driven so much by fundamentals - how do people hedge spread vol positions then?why not using options on heating oil? quite liquid

yetanotherquant · January 13th, 2010, 5:31 pm

I don't think people hedge crack spread options using options on crude and on heating oil... a hedge analysis with such a scheme (keeping corr fixed) shows p&l leakage from such a 2-factor model in which one delta and vega hedges. Simply delta hedging the crack spd otion seems to give much smaller p&l leakage.