Bloomberg News

Oil Options Volatility Rises on Fed Statement, Inventory Drop

August 01, 2012

Oil options volatility climbed after U.S. crude inventories dropped the most in seven months and on speculation central banks will take steps to support the economic recovery.

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 31.3 percent at 3:05 p.m. on the New York Mercantile Exchange, up from 31.1 yesterday.

Oil for September delivery increased 85 cents to settle at $88.91 a barrel on the Nymex after the Energy Department said U.S. crude inventories dropped 6.5 million barrels, or 1.7 percent, to 373.6 million. The Federal Reserve also said the economy has slowed and foreshadowed new steps to boost the weakening expansion.

“There’s a little bit of excitement anytime the Fed comes out and says anything about rates, even if they say it’s unchanged,” Fred Rigolini, vice president of Paramount Options Inc. in New York, said by telephone. “And there was kind of a surprising inventory draw here today, so that boosted volatility a little bit.”

The most active options in electronic trading today were September $80 puts, which fell 7 cents to 21 cents a barrel at 3:08 p.m. with 2,125 lots trading. September $85 puts were the second-most active options, with 2,010 lots changing hands as they declined 21 cents to 90 cents a barrel.

Puts accounted for 59 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.

In the previous session, calls accounted for 56 percent of the 105,632 contracts traded.

September $85 puts were the most actively traded options yesterday, with 4,904 lots changing hands. They rose 38 cents to $1.11 a barrel. September $98 calls declined 11 cents to 17 cents on volume of 4,540.

Open interest was highest for December $80 puts with 42,758 contracts. Next were December $100 calls with 40,303 lots and December $120 calls with 38,845.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

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


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