Bloomberg News

Oil Options Volatility Falls as Futures Drop on Jobs

July 09, 2012

Crude-oil options volatility was little changed as futures rose on speculation that a slowdown in the global economy will prompt more economic stimulus measures in the U.S., Europe and Asia.

Implied volatility for at-the-money options expiring in September, a measure of expected price swings in futures and a gauge of options prices, was 35.28 percent at 2:35 p.m. on the New York Mercantile Exchange, down from 35.31 percent yesterday.

“On an up move like today, volatility would normally be down,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “But there was a lot of straddle buying of September $85 puts and calls, keeping the volatility higher than it should be.”

Crude oil for September delivery rose $1.54, or 1.8 percent, to settle at $86.37 a barrel on the Nymex, after sliding 3.1 percent on July 6 as U.S. Labor Department figures showed June payrolls added fewer jobs than projected.

Boston Federal Reserve President Eric Rosengren called the June job figures “disappointing” and said a third round of asset purchases, known as quantitative easing or QE3, is possible depending on economic data. Chinese Premier Wen Jiabao said the downward economic pressure is still “relatively large” and the government will intensify policy fine-tuning. Euro-area finance ministers are meeting in Brussels on the debt crisis.

“There’s talk of some more easing from all the world’s economies,” Rigolini said. “The market is reacting to that and partly it was an oversold market on Friday.”

The most active options in electronic trading today were September $82 puts, which fell 61 cents to $2.20 a barrel at 2:40 p.m. with 1,422 lots trading. August $90 calls were the second-most active options, with 1,368 lots changing hands as they gained 12 cents to 46 cents.

Bullish Bets

Puts accounted for 53 percent of total 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 54 percent of the 147,264 contracts traded in the previous session.

August $78 puts were the most actively traded, with 8,921 lots changing hands. They rose 14 cents to 28 cents a barrel. The next-most active options, August $95 calls, declined 20 cents to 6 cents on volume of 7,279.

Open interest was highest for December $80 puts with 44,246 contracts. Next were December $120 calls with 40,500 lots and December $70 puts with 35,612.

To contact the reporter on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net


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