Oil Volatility Falls as Futures Decline on French Outlook Cut

Oil options volatility dropped as the underlying futures tumbled to a six-week low after Fitch Ratings lowered France’s rating outlook and put nations including Spain and Italy on review for a downgrade.

Implied volatility for at-the-money options expiring in February, a measure of expected swings in futures and a gauge of options prices, fell to 36.8 at 2 p.m. in New York from 38 yesterday. Oil dropped as much as 1.4 percent as Fitch cited Europe’s failure to find a “comprehensive solution” to the debt crisis as a reason for the review.

The most active options contracts in electronic trading today were February $110 calls, with 1,920 lots changing hands as of 1:57 p.m. in New York. The options fell 14 cents to 44 cents a barrel. February $90 puts traded 1,396 lots, dropping 3 cents to $2.58. One contract covers 1,000 barrels of crude.

Oil for January delivery dropped 30 cents, or 0.3 percent, to $93.57 a barrel at 1:54 p.m. on the New York Mercantile Exchange. The contract touched $92.52, the lowest intraday level since Nov. 3.

February $140 calls were the most active options traded in the previous session, with 3,952 lots changing hands. They rose 1 cent to 12 cents a barrel. The next most active options, February $115 calls, declined 3 cents to 40 cents on volume of 2,699 contracts.

Open interest was highest for December 2012 $150 calls with 37,825 contracts. Next were December 2012 $80 puts with 37,059 contracts and December 2012 $100 calls with 33,093.

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