Bloomberg News

Oil Options Volatility Rises as Futures Fall on European Debt

December 28, 2011

Dec. 28 (Bloomberg) -- Oil options volatility rose as the underlying futures fell for the first time in seven days after the European Central Bank said its balance sheet soared to a record high.

Implied volatility for at-the-money options expiring in February, a measure of expected swings in futures and a gauge of options prices, was 33.2 at 1 p.m. in New York, an increase from 31.7 yesterday.

Crude fell as much as 2.2 percent after the ECB said its balance sheet grew to 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week to keep credit flowing to the economy during the debt crisis.

“The European economy tops the list of concerns for oil traders,” said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas. “Europe is making the market more volatile, as well as Iran.”

The most active options contracts in electronic trading today were February $92 puts, with 1,125 lots changing hands at 12:52 p.m. The options rose 42 cents to 99 cents a barrel. Next were March $100 puts, with 794 lots. They gained 33 cents to $4.80. One contract covers 1,000 barrels of crude.

Puts accounted for 65 percent of the volume.

Oil for February delivery declined $1.67, or 1.7 percent, to $99.67 a barrel as of 12:52 p.m. on the New York Mercantile Exchange. Oil is up 9 percent this year.

February $90 puts were the most active options traded in the previous session, with 5,750 lots changing hands. They slid 22 cents to 41 cents. The next-most active options, February $85 puts, declined 9 cents to 18 cents on volume of 4,636.

Puts accounted for 57 percent of 68,944 lots traded.

Open interest was highest for December 2012 $150 calls with 37,831 contracts. Next were December 2012 $80 puts with 37,159 contracts, and December 2012 $100 calls with 32,346.

The exchange distributes real-time data for electronic trading and releases information on floor trading, where the bulk of options trading occurs, the next business day.

--Editors: Charlotte Porter, Bill Banker

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net


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