Oil options volatility rose for the second day as crude fell the most since December as President Barack Obama said a pre-emptive strike on Iran might generate “sympathy” for the Persian Gulf country, easing concern that an attack would take place.
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 28.2 as of 2:30 p.m. in New York, up from 27.9 yesterday. Puts were 60 percent of the volume. Implied volatility for 25-delta calls, which gain 25 cents for each $1 rise in futures, was 28.6, up from 27.8 yesterday.
Oil for April delivery fell $2.14, or 2 percent, to settle at $106.70 a barrel on the New York Mercantile Exchange. Futures reached $110.55 late yesterday after Press TV, an Iranian state- run news channel, reported an explosion in an oil pipeline in Saudi Arabia. Major General Mansour Al-Turki, a spokesman for the Saudi Interior Ministry, said no oil facility in the region has been sabotaged.
“The news didn’t break until after the market closed, so it was a knee-jerk reaction where” people who were short volatility thought it wasn’t such a good idea, Matt Millar, director and portfolio manager at hedge fund Armored Wolf LLC, said by phone. “The story is not true but human beings tend to respond to these events irrationally.”
The most active options in electronic trading today were April $100 puts. They rose 13 cents to 41 cents a barrel with 5,622 contracts trading as of 2:32 p.m. in New York. Next were April $105 puts, which gained 45 cents to $1.44 a barrel on 3,111 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 53 percent of the volume in the previous session. April $100 puts were the most actively traded options, with 17,962 lots changing hands. They lost 22 cents to 28 cents a barrel. The next-most active options, April $105 puts, fell 56 cents to 99 cents on volume of 10,017 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 39,200 lots and December $100 calls with 34,926.
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