Bloomberg News

Oil Options Volatility Falls to Six-Week Low as Futures Surge

August 03, 2012

Oil options volatility fell to the lowest level since June 19 as futures rose to a two-week high after reports indicated strengthening in the U.S. labor market and service industries.

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 29.92 percent at 3:35 p.m. on the New York Mercantile Exchange, down from 30.77 yesterday.

“The market is higher and we’re back over $90 so volatility naturally comes off,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

Rigolini said the 4.9 percent gain in futures and a weaker dollar increased interest in buying calls and straddles, where a buyer takes a put and a call at the same price, betting on a large movement in either direction.

Crude oil for September delivery rose $4.27 to $91.40 a barrel on the Nymex, the biggest gain since June 29.

“There’s some buying on protection or on a whim we could get over $100 again,” Rigolini said.

The most active options in electronic trading today were September $100 calls, which rose 14 cents to 21 cents a barrel at 3:39 p.m. with 2,901 lots trading. September $80 puts were the second-most active options, with 2,563 lots changing hands as they declined 23 cents to 7 cents a barrel.

Calls accounted for 55 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.

Previous Session

In the previous session, bullish bets accounted for 57 percent of the 83,782 contracts traded.

September $100 calls were the most actively traded options yesterday, with 5,053 lots changing hands. They fell 7 cents to 7 cents a barrel. September $80 puts rose 8 cents to 30 cents on volume of 4,739.

Open interest was highest for December $80 puts with 41,840 contracts. Next were December $100 calls with 40,740 lots and December $120 calls with 39,227.

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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