Bloomberg News

Oil Options Volatility Falls as Futures Rise

June 29, 2012

Crude-oil options volatility slipped as underlying futures surged the most in 16 months after a European accord relieved concern that banks would fail and the region would sink further into debt.

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 30.97 percent at 1:25 p.m. on the New York Mercantile Exchange, down from 32 percent yesterday.

“You have the higher price, volatility is coming off and we’re back up in the range we were before,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

Crude oil for August delivery rose $6.15, or 7.9 percent, to $83.84 a barrel at 1:28 p.m. on the Nymex.

Leaders of the 17 euro countries dropped requirements that taxpayers get preferred creditor status on aid to Spain’s banks and opened the way to recapitalize lenders directly. The region’s debt crisis has erased more than $4.9 trillion from global equity values this quarter amid concern Europe’s sovereign debt crisis would slow the global recovery.

Rigolini said traders were buying August $70 puts and August $90 calls and August and December straddles, where they bought a put and a call at the same price, betting on a large movement in either direction.

“You’re long a call and a put because you believe things are not going to be at this price very long and will either go a lot higher or a lot lower,” Rigolini said.

The most active oil options in electronic trading today were August $70 puts, which fell 27 cents to 5 cents a barrel at 1:30 p.m. with 4,963 lots trading. August $90 calls were the second-most active options, with 3,802 lots changing hands as they rose 40 cents to 46 cents.

Calls accounted for 60 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 129,453 contracts traded in the previous session. August $70 puts were the most actively traded, with 7,143 lots changing hands. They rose 18 cents to 32 cents. The next-most active options, August $75 puts, advanced 61 cents to $1.25 on volume of 6,728.

Open interest was highest for December $80 puts with 44,819 contracts. Next were December $120 calls with 39,444 lots and December $70 puts with 38,043.

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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