Bloomberg News

Crude Options Volatility Declines a Fourth Day as Futures Slip

March 12, 2012

Crude oil options volatility fell for a fourth consecutive session as underlying futures declined after a report showing China’s growth slowed the first two months of this year.

Implied volatility for at-the-money options expiring in May, a measure of expected price swings in futures and a gauge of options prices, sank to 27 percent as of 2 p.m., down from 27.8 percent on March 9.

“Volatility is way down across the board,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “Oil is down today but it has been stabilizing, and when you take the large swings out of the market, that’s saps some of the volatility.”

Crude for April delivery fell $1.14, or 1.1 percent, to $106.26 a barrel at 2:05 p.m. on the New York Mercantile Exchange. The May contract declined $1.09 to $106.78. Since Feb. 21, the front-month contract has traded in a range of $104.26 to $110.55.

The most active options in electronic trading today were April $101 puts, with 1,560 lots changing hands at 2:33 p.m. They rose 1 cents to 12 cents a barrel. April $100 puts, the second-most active options, declined gained 1 cent to 9 cents with 1,532 lots trading. One contract covers 1,000 barrels of crude.

Puts accounted for 52 percent of electronic trading volume.

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

Bearish options accounted for 65 percent of the 147,581 trades from the previous session. June $95 puts were the most actively traded, with 11,131 lots changing hands as they fell 20 cents to $1.45 a barrel. The next-most active options, June $100 puts, declined 32 cents $2.45 on volume of 10,613.

Open interest was highest for December $80 puts with 46,401 contracts. Next were December $150 calls with 38,629 lots and December $100 calls with 34,927.

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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