Performance Persistence and the Implied Volatility Smile of the Commodity Options Contracts. We Examine Hedge Funds Contracts of Wheat, Corn, Live Cattle, Soybean Oil, and Lean Hog

In this article, we examine performance persistence and the implied volatility smile of the commodity options contracts. We examine contracts of wheat, corn, live cattle, soybean oil, and lean hog. Hedge funds use options and futures in terms of commodities to hedge market risk. We compare the long and short - run performance returns after fees deduction. The implied volatility is quite high as there are large fluctuations of average returns of commodity options. This is the first study that provides a detailed analysis of performance persistence and volatility using data from the Chicago mercantile exchange, CME, derivative market. The sample that we use is from the period 2010 to 2020. We show the existence of the implied volatility smile from the commodity options market by comparing historical in relation to implied volatilities. We found strong evidence of performance persistence in the commodity options market over the five and ten year periods. There is evidence of strong performance persistence of commodity options that showed positive and superior performance during the long-term. The results are mixed for both winners and losers. The findings are interesting for academics, investors and practitioners in terms whether there is performance persistence and for how long