Bloomberg News

Oil Options Volatility Increases as Crude Advances to $110

March 01, 2012

Oil options volatility rose for the first time in six days as crude climbed over $110 a barrel for the first time since May after a report of an explosion on a pipeline in Saudi Arabia.

Implied volatility for at-the-money options expiring in April, a measure of expected price swings in futures and a gauge of options prices, was 29.7 as of 4:30 p.m. in New York, up from 27.7 yesterday. Calls were 54 percent of the volume. Implied volatility for 25-delta calls, which gain 25 cents for each $1 rise in futures, was 30, up from 27 yesterday.

Crude futures reached $110.55 at 3:17 p.m. New York time after Press TV, an Iranian state-run news channel, reported that “an explosion has hit oil pipelines in the flashpoint Saudi Arabian city of Awamiyah in the kingdom’s oil-rich Eastern province.”

“Uncertainty creates demand for options, you’re seeing this market really pricing in the fear to the upside,” Vince Lanci, managing partner of Echobay Partners LLC, a commodity option trading firm in Stamford, Connecticut, said by phone. “This market is focused on not hedgers but speculators and people looking forward to the greed factor as opposed to fear.”

Most-Active

The most active options in electronic trading today were April $105 puts. They fell 45 cents to $1.10 a barrel with 5,170 contracts trading as of 4:49 p.m. in New York. Next were April $100 puts, which dropped 19 cents to 31 cents a barrel on 4,237 lots. A contract covers 1,000 barrels of crude.

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.

Puts accounted for 52 percent of the volume in the previous session. April $100 puts were the most actively traded options, with 13,210 lots changing hands. They lost 17 cents to 50 cents a barrel. The next-most active options, June $135 calls, fell 3 cents to 73 cents on volume of 9,597 lots.

April options expire on March 15.

Open interest was highest for December $80 puts with 46,153 contracts. Next were December $150 calls with 37,447 lots and December $100 calls with 34,626.

To contact the reporter on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

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


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