Hedging pressure and liquidity provision in commodity options markets

This study examines hedging pressure and liquidity provision in commodity options markets using data from the weekly US Commodity Futures Trading Commission Commitments of Traders and Disaggregated Commitments of Traders reports. The "options-only" reports are obtained from futures-only and futures-and-options-combined reports. We build the futures price series based on commodity options expiration dates. There are significant hedging pressure effects in commodity options markets. The empirical results indicate that commercials (swap dealers) provide liquidity to non-commercials (money managers) in commodity options markets in the short run.