Bloomberg News

Oil Options Volatility Declines as Futures Increase

April 13, 2012

Oil options volatility dropped as the underlying futures fell after China’s growth slowed and Saudi Arabia’s oil minister said his kingdom is determined to see prices decline.

Implied volatility for at-the-money options expiring in June, a measure of expected price swings in futures and a gauge of options prices, was 26.87 percent as of 3:10 p.m. on the New York Mercantile Exchange, down from 26.97 percent yesterday. It was the third straight decline.

“You’re seeing some premium come out of the market before the weekend, and there’s a very small trading range and nobody wants to buy options,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

Crude oil for May delivery fell 81 cents, or 0.8 percent, to settle at $102.83 a barrel on the Nymex, capping the fifth weekly decline since February. Crude this week traded between $100.68 and $104.24 a barrel.

Brent oil for May settlement climbed 12 cents to $121.83 a barrel on the London-based ICE Futures Europe exchange.

Saudi Arabia is working toward its goal of seeing prices drop by highlighting there’s no shortage of supply, Oil Minister Ali al-Naimi said in a statement in Seoul today. Stockpiles held by consumer nations are rising and the kingdom is producing 10 million barrels a day, he said. That’s close to the fastest rate in at least 31 years, official data show.

China’s Growth Slows

In China, the National Bureau of Statistics said gross domestic product in the world’s second-biggest oil-consuming country expanded 8.1 percent in the first quarter from a year earlier, the smallest gain since 2009.

The most-active oil options in electronic trading today were May $100 puts, which fell 2 cent to 17 cents a barrel at 3:12 p.m. with 4,166 contracts trading. June $110 calls were the second-most active with 2,145 lots changing hands. They lost 22 cents to $1.01 a barrel.

Puts accounted for 52 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.

Bearish bets accounted for 52 percent of the 105,837 trades in the previous session. June $100 puts were the most actively traded, with 7,754 lots changing hands as they fell 44 cents to $1.96 a barrel. The next-most active options, May $100 puts, declined 29 cents to 19 cents on volume of 4,968.

Open interest was highest for December $80 puts with 46,811 contracts. Next were December $150 calls with 38,982 lots and June $140 calls with 34,399.

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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