Oil Volatility Strengthens as Futures Advance to 26-Month High

Oil options volatility strengthened as the underlying crude futures rose to a 26-month high on speculation the U.S. may extend stimulus measures, bolstering fuel demand in the world’s largest oil consuming country, and on cold-weather forecasts for the U.S. and Europe.

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 31.1 percent as of 4 p.m. in New York, up from 29.8 percent Dec. 3.

Crude oil for January delivery rose 19 cents to settle at $89.38 a barrel on the New York Mercantile Exchange, the highest level since Oct. 7, 2008. Prices have climbed 13 percent this year.

Crude extended its longest advance in four weeks after Federal Reserve Chairman Ben S. Bernanke said the Fed may expand bond purchases beyond the $600 billion announced last month. Severe winter weather in parts of the U.S. and Europe boosted demand for heating fuel.

January $90 calls were the most active options in electronic trading today with 2,482 lots changing hands as of 4:15 p.m. They lost 25 cents to $1.27 a barrel. January $85 puts, the next-most active contract, fell 20 cents to 40 cents a barrel with 1,640 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.

June $120 calls were the most active options traded Dec. 3 with 6,231 lots changing hands. They rose 20 cents to 76 cents. March $70 puts, the next-most active option, lost 6 cents to 39 cents with 5,873 contracts traded.

Open interest was highest Dec. 3 for December $100 calls with 45,972 contracts. Next were December $120 calls with 32,298 and February $100 calls at 28,998 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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