Bloomberg News

Oil Options Volatility Falls as Futures Stay in Range

April 27, 2012

Oil options volatility declined to the lowest level in more than a year as the underlying futures gained.

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 20.63 percent at 2:55 p.m. on the New York Mercantile Exchange, down from 22.19 percent yesterday. It was the seventh straight decline and lowest level since at least March 4, 2011.

“The market has been in a $5 trading range for weeks,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “This is a boring market. Volatility comes in as the price range continues to tighten.”

Crude oil for June delivery rose 38 cents, or 0.4 percent, to settle at $104.93 on the Nymex. Crude, which has gained 6.2 percent this year, has traded in a range of $100.68 to $105.07 since April 4.

The most-active oil options in electronic trading today were June $110 calls, which fell 5 cents to 41 cents a barrel at 2:59 p.m. with 2,410 lots trading. June $97.50 puts were the second-most active with 2,128 lots changing hands. They lost 10 cents to 31 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.

Calls accounted for 57 percent of the 117,487 trades in the previous session. June $115 calls were the most actively traded, with 7,825 lots changing hands. They were down 2 cents to 12 cents a barrel. The next-most active options, June $100 puts, fell 20 cents to 77 cents on volume of 6,384.

Open interest was highest for December $80 puts with 44,314 contracts. Next were December $150 calls with 38,160 lots and June $140 calls with 35,079.

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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