The recent uptick in traded option volatilities in the London Metal Exchange copper market has faded as the month-end draws near, while what is likely to be an unexciting August expiry this Wednesday looks like setting a marker for the rest of the summer.
Front-month at-the-money (ATM) copper volatility has dipped back to just under 20%, having climbed above 26% on August 19 - the best since early-December 2016, having started July around 17% That spike in this key option pricing indicator was linked to the sub-$6,000 per tonne price downswing to $5,988 per tonne that took place in the underlying market recently - the lowest for just over a year. Copper's price collapse from over $7,300 per tonne in late-June took place against the backdrop of worsening macroeconomic trade tensions between the United States, China and the European Union, the world's biggest trading blocs. These trade worries have abated very slightly in recent days, but three-month copper on the LME is still in the doldrums at just above $6,200 per tonne. Given a peak-to-trough move in excess of $1,300, it was always likely that there would be a reaction in the copper traded...