Bloomberg News

Oil Options Volatility Increases as Lawmakers Seek Budget Accord

December 04, 2012

Crude oil options volatility rose as the underlying futures declined while U.S. leaders remained at odds in negotiations to avert the so-called fiscal cliff.

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 27.23 percent on the New York Mercantile Exchange as of 3:50 p.m., an increase from 26.73 percent yesterday.

January-delivery crude oil fell 59 cents, or 0.7 percent, to settle at $88.50 on the Nymex, the first drop in four days.

“Concern about the fiscal cliff is impacting the market,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consulting company in London. President Barack Obama, a Democrat, yesterday rejected Republican House Speaker John Boehner’s counterproposal to avoid the $607 billion in tax increases and spending cuts set to take effect in January.

Boehner proposed $2.2 trillion in spending cuts and new revenue without raising taxes. Obama said in a Bloomberg Television interview today that the stalemate will continue as long as Republicans refuse to raise tax rates on the top 2 percent of earners.

The most active options in electronic trading today were January $85 puts, which advanced 9 cents to 54 cents a barrel on volume of 2,221 lots at 3:49 p.m. January $80 puts were the second-most active, with 1,447 lots exchanged as they were unchanged at 9 cents a barrel.

Puts Predominate

Bets that prices would decline, or puts, accounted for 58 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, bearish bets made up 61 percent of the 123,775 contracts traded.

February $110 calls were the most active options yesterday with 6,106 contracts. They were unchanged at 11 cents a barrel. January $85 puts fell 13 cents to 45 cents on 5,112 lots.

Open interest was highest for January $105 calls, with 45,699 contracts. Next were January $60 puts, at 34,922 lots, and January $110 calls, with 31,400.

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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