Bloomberg News

Crude Options Volatility Slip as Futures Gain on Fed Pledge

January 26, 2012

Jan. 26 (Bloomberg) -- Crude oil options volatility fell as underlying futures rose for a second day after the Federal Reserve pledged to maintain low interest rates into late 2014.

Implied volatility for at-the-money options expiring in March, a measure of expected price swings in futures and a gauge of options prices, was 27.7 as of 3 p.m. in New York, down from 28.8 yesterday.

Crude for March delivery rose 30 cents to settle at $99.70 a barrel on the New York Mercantile Exchange. Futures earlier touched $101.39 before paring gains as the dollar strengthened versus the euro and the Standard & Poor’s 500 fell.

“Volatility was off with the rally and now it’s coming in almost unchanged,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “We’re still in a range and, as long as that persists, you’re going to see volatility stay in the high 20 percent.”

Since Dec. 22, the front-month crude contract has traded in a range of about $6, between a low of $97.40 and a high of $103.74.

The most active options in electronic trading today were March $95 puts, with 1,922 lots changing hands at 3:19 p.m. They fell 9 cents to $1.06. March $90 puts, the second-most active option, declined 8 cents to 31 cents with 1,866 lots trading. One contract covers 1,000 barrels of crude.

“March $90 puts were trading and so were March $115 calls,” Rigolini, who trades for clients on the Nymex.

Puts accounted for 60 percent of electronic trading volume and were three of the four most-active contracts.

Previous Session

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.

Bearish options accounted for 59 percent of volume yesterday. April $90 puts were the most actively traded, with 4,890 lots changing hands as they fell 24 cents to $1.42 a barrel. The next-most active options, June $75 puts, declined 6 cents to $1.04 on volume of 4,569 lots.

Open interest was highest for December $80 puts with 39,483 contracts. Next were December $150 calls with 36,812 lots and December $100 calls with 32,817.

--With assistance from Mark Shenk in New York. Editors: Charlotte Porter, Dan Stets

To contact the reporter on this story: Barbara J. Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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