Oil Volatility Falls as Futures Climb Most in Almost Four Weeks

Oil options volatility fell as underlying futures rose the most in almost four weeks on speculation there may be a supply disruption.

Implied volatility for at-the-money options expiring in January, a measure of expected swings in futures and a gauge of options prices, declined to 35.1 at 2 p.m. in New York from 36.8 yesterday. Futures rose on a report that Iran will hold drills to close the Strait of Hormuz, a bottleneck for oil exports from the Persian Gulf.

The most active options contracts in electronic trading today were February $85 puts, with 3,040 lots changing hands as of 2:12 p.m. in New York. The options fell 34 cents to 61 cents a barrel. January $95 puts traded 2,508 lots, dropping 37 cents to 11 cents. One contract covers 1,000 barrels of crude.

Oil for January delivery was up $2.39, or 2.4 percent, to $100.16 a barrel at 1:56 p.m. on the New York Mercantile Exchange, heading for the biggest gain since Nov. 16.

February $130 calls were the most active options traded in the previous session, with 6,185 lots changing hands. They dropped 3 cents to 21 cents a barrel. The next-most active options, February $135 calls, declined 2 cents to 17 cents on volume of 5,808 contracts.

Open interest was highest for December 2012 $150 calls with 38,023 contracts. Next were December 2012 $80 puts with 35,704 contracts and December 2012 $100 calls with 32,766.

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

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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

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