Bloomberg News

Oil Options Volatility Falls as Economic Gains Boost Crude

November 29, 2012

Crude oil options volatility fell as underlying futures rose as the U.S. economy showed gains amid optimism that U.S. lawmakers will make progress on budget talks.

Implied volatility for at-the-money options expiring in January, a measure of expected price swings in futures and a gauge of options prices, was 27.05 percent on the New York Mercantile Exchange as of 4:20 p.m., down from 28.92 percent yesterday.

January-delivery crude oil rose $1.58 to $88.07 a barrel on the Nymex, the first increase in four days.

President Barack Obama’s administration is negotiating with a divided Congress to avert a $607 billion package of automatic spending cuts and tax increases set to begin Jan. 1. The Congressional Budget Office has said that failure to reach an agreement may push the economy into a recession next year.

“We got some positive economic news today, which adds to the bullishness for commodities,” said Gordon Elliott, a risk management specialist at Intl FC Stone LLC in St. Louis Park, Minnesota.

The most active options in electronic trading today were January $80 puts, which fell 13 cents to 17 cents a barrel on volume of 7,422 lots at 4:26 p.m. January $85 puts were the second-most active, with 2,689 lots exchanged as they declined 49 cents to 89 cents a barrel.

Bets that prices would decline, or puts, accounted for 54 percent of trading volume.

The exchange distributes real-time data for electronic trading and releases information the next business day on open- outcry volume, where the bulk of options activity occurs.

In the previous session, bullish bets made up 53 percent of the 121,264 contracts traded.

January $75 puts were the most actively traded options yesterday with 6,678 contracts. They were unchanged at 5 cents a barrel. February $75 puts rose 6 cents to 41 cents on volume of 5,643 lots.

Open interest was highest for January $105 calls, with 45,832 contracts. Next were January $60 puts, at 34,924 lots, and January $110 calls, with 31,209 contracts.

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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