Oil Volatility Strengthens as Futures Climb to 25-Month High

Oil options volatility strengthened as the underlying crude futures rose to a 25-month high as the dollar tumbled, increasing the appeal of commodities as an alternative investment.

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 31.2 percent as of 4 p.m. in New York, up from 29.9 percent yesterday.

Crude oil for January delivery rose $1.19, or 1.4 percent, to settle at $89.19 a barrel on the New York Mercantile Exchange. Futures increased 6.5 percent this week and have gained 12 percent this year.

Crude jumped as much as 1.1 percent as the Dollar Index, which tracks the currency against six others, dropped to the lowest intraday level since Nov. 23. The dollar slipped after U.S. employers added fewer jobs than forecast in November and the unemployment rate unexpectedly increased.

March $70 puts were the most active options in electronic trading today with 4,613 lots changing hands. They lost 6 cents to 39 cents a barrel. January $90 calls, the next-most active contract, climbed 62 cents to $1.65 a barrel with 4,328 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.

March $125 calls were the most active options traded yesterday with 9,026 lots changing hands. They rose 3 cents to 6 cents. January $91 calls, the next-most active option, added 20 cents to 72 cents with 6,160 contracts traded.

Open interest was highest yesterday for December 2011 $100 calls with 45,971 contracts. Next were December 2011 $120 calls with 32,198 and February 2011 $100 calls at 28,365 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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