Oil Volatility Declines as Futures Fall on Italian Bond Yields

Oil options volatility declined and the underlying futures fell on Italy’s borrowing costs, which rose to a euro-era record.

Implied volatility for at-the-money options expiring in January, a measure of expected swings in futures and a gauge of options prices, fell to 39.9 at noon today in New York from 41.8 on Nov. 11. Italy sold 3 billion euros ($4.1 billion) of five- year notes priced to yield 6.29 percent, the biggest yield since June 1997. Mario Monti was offered the post of Italian prime minister yesterday.

“It’s not going to be as dramatic a week as we’ve been experiencing over the past several,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said in a telephone interview.

The most-active options contracts in electronic trading today were December $100 calls, with 2,256 lots changing hands as of 12:09 p.m. in New York. The options fell 72 cents to 16 cents a barrel. January $130 calls fell 8 cents to 32 cents on volume of 2,025. One contract covers 1,000 barrels of crude.

Calls accounted for about 59 percent of the volume.

Oil for December delivery fell $1.11 to $97.88 a barrel at 12:10 p.m. on the New York Mercantile Exchange.

December $100 calls were the most-active options traded in the previous session, with 14,727 lots changing hands. They advanced 7 cents to 88 cents a barrel. The next-most-active options, December $105 calls, were unchanged at 18 cents on volume of 5,040.

Calls accounted for about 60 percent of 179,064 lots.

Open interest was highest for December $110 calls with 52,451 contracts. Next were December $50 puts with 49,705 and December $120 calls with 46,085.

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.

To contact the reporter on this story: Justin Doom in New York at jdoom1@bloomberg.net

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

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