Bloomberg News

Oil Options Volatility Falls as Crude Drops on Economic Report

April 03, 2012

Oil options volatility slipped as the underlying futures fell after the Federal Reserve said it’s holding off on increasing monetary stimulus.

Implied volatility for at-the-money options expiring in May, a measure of expected price swings in futures and a gauge of options prices, was 23.7 percent as of 4 p.m. on the New York Mercantile Exchange versus 24.4 percent yesterday.

Crude for May delivery dropped $1.22 to settle at $104.01 a barrel on the Nymex after minutes of the Fed’s March 13 meeting, released today, showed a decreased urgency to add monetary accommodation. The Commerce Department reported factory bookings rose 1.3 percent in February, lower than the 1.5 percent projected in a Bloomberg News survey of 60 economists.

“There was a tremendous amount of fear premium in crude and some of that is getting taken out now,” Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York, said in a telephone interview. “Just the way the market’s been trading in such tight ranges is also decreasing volatility.”

The most-active options in electronic trading today were May $100 puts, which rose 10 cents to 62 cents a barrel at 4:01 p.m. in New York with 1,916 contracts trading. Next were June $95 puts with 1,830 lots changing hands. They increased 11 cents to 92 cents.

Puts accounted for 55 percent of electronic trading volume. One contract covers 1,000 barrels of crude.

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.

Bullish options accounted for 58 percent of the 118,788 trades yesterday. June $100 puts were the most active, with 10,251 lots changing hands as they fell 87 cents to $1.73 a barrel. The next-most active options, May $100 puts, dropped 65 cents to 52 cents on volume of 8,830.

Open interest in the previous session was highest for December $80 puts with 45,872 contracts. Next were December $150 calls with 39,033 lots and December $100 calls with 34,927.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

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


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