Oil Options Volatility Rises as Futures Fall on Seaway Pipeline

Oil options volatility rose as the underlying futures retreated on concern that the planned reversal of the Seaway pipeline won’t be enough to eliminate a glut of crude oil in the U.S. Midwest.

Implied volatility for at-the-money options expiring in January, a measure of expected swings in futures and a gauge of options prices, rose to 38.6 at 1 p.m. in New York, from 37.9 yesterday. Brent’s premium to West Texas Intermediate oil rose after narrowing to an eight-month low Nov. 16 following the announcement by Enbridge Inc. and Enterprise Products Partners LP that they will reverse the direction of the line.

“A bigger pipeline effect is expected when it actually starts influencing the physical market,” Thina Saltvedt, an analyst at Nordea Bank AB in Oslo, said in an e-mail.

The most active options contracts in electronic trading today were January $90 puts, with 1,959 lots changing hands as of 12:56 p.m. in New York. The options advanced 29 cents to $1.72 a barrel. January $95 puts traded 1,109 lots, gaining 51 cents to $3.11. One contract covers 1,000 barrels of crude.

Puts accounted for about 58 percent of the volume.

Oil for December delivery declined $1.67, or 1.7 percent, to $97.17 a barrel at 12:56 p.m. on the New York Mercantile Exchange. Yesterday, it reached $103.37, the highest intraday level since May 31.

January $110 calls were the most active options traded in the previous session, with 5,561 lots changing hands. They fell 61 cents to 76 cents a barrel. The next-most active options, January $95 puts, rose $1.11 to $2.60 on volume of 5,547.

Puts accounted for about 57 percent of 116,480 lots.

Open interest was highest for December 2012 $80 puts with 35,275 contracts. Next were December 2012 $100 calls with 31,632 and December 2012 $150 calls with 29,758.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.