Oil Volatility Strengthen as Futures Rise to Two-Year High

Oil options volatility strengthened as the underlying crude futures rose to a two-year high after European Central Bank President Jean-Claude Trichet said the bank will delay its withdrawal of stimulus measures.

Implied volatility for at-the-money options expiring in February, a measure of expected price swings in futures and a gauge of options prices, was 30.1 percent as of 4 p.m. in New York, up from 28.8 percent yesterday.

Crude oil for January delivery rose $1.25 to $88 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 8, 2008. Futures are up 15 percent from a year ago.

Crude futures climbed 1.4 percent and the dollar fell against the euro after Trichet said the ECB will keep offering banks as much cash as they want through the first quarter.

Also boosting crude was a report showing sales of existing U.S. homes jumped by a record amount. The number of Americans signing contacts to buy previously owned homes increased 10 percent in October, the National Association of Realtors said today in Washington.

January $90 calls were the most active options in electronic trading today with 3,178 lots changing hands. They added 32 cents to $1.05 a barrel. January $92 calls, the next- most active contract, climbed 16 cents to 52 cents a barrel with 1,842 contracts trading.

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

February $75 puts were the most active options traded yesterday with 7,166 lots changing hands. They dropped 28 cents to 57 cents. January $92 calls, the next-most active option, added 18 cents to 36 cents with 6,129 contracts traded.

Open interest was highest yesterday for December 2011 $100 calls with 45,971 contracts. Next were December 2011 $120 calls with 32,199 and February 2011 $100 calls at 28,632 lots.

To contact the reporter on this story: Samantha Zee in San Francisco at szee@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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