Bloomberg News

Oil Options Volatility Rises as Crude Sinks Below $80

June 21, 2012

Crude-oil options volatility gained a second straight day as concern that the global economy is slowing pushed underlying futures below $80 for the first time in eight months.

Implied volatility for at-the-money options expiring in August, a measure of expected price swings in futures and a gauge of options prices, was 33.7 percent at 12:50 p.m. on the New York Mercantile Exchange, up from 31.5 percent yesterday.

“Volatility is definitely pretty well bid again because of the price breakdown below $80,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

Crude oil for August delivery fell $2.18, or 2.7 percent, to $79.27 a barrel at 12:58 p.m. on the Nymex, after touching $79.07, the lowest intraday price since Oct. 5.

Oil slid after reports that manufacturing weakened in Europe, China and the Philadelphia region in the U.S. and after U.S. jobless claims fell less than projected. The Federal Reserve yesterday reduced its forecasts for growth and employment, noting “significant downside risks” to the economy.

The most active oil options in electronic trading today were November $50 puts, which rose 16 cents to 34 cents a barrel at 12:56 p.m. with 5,745 lots trading. August $70 puts were the second-most active options, with 3,187 lots changing hands as they advanced 22 cents to 51 cents.

Bearish Bets

Puts accounted for 58 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 53 percent of the 179,754 contracts traded in the previous session. August $75 puts were the most actively traded, with 6,625 lots changing hands. They rose 41 cents to 88 cents. The next-most active options, August $70 puts, gained 15 cents to 29 cents on volume of 6,455.

Open interest was highest for December $80 puts with 45,926 contracts. Next were December $100 calls with 39,673 lots and December $70 puts with 36,981.

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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