Oil Options Volatility Declines as Price Slips on Europe Crisis
Oil options volatility fell as crude dropped from a three-week high after euro-area finance ministers refused to approve a rescue package for Greece, boosting concern that the European debt crisis will reduce fuel demand.
Implied volatility for at-the-money options expiring in April, a measure of expected price swings in futures and a gauge of options prices, was 29.6 as of 2:30 p.m. in New York, down from 29.8 yesterday.
Crude for March delivery dropped $1.17, or 1.2 percent, to $98.67 a barrel on the New York Mercantile Exchange. The 15-day range is $95.44 to $101.39.
“We are just incredibly range-bound,” James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida, said by phone. “We have a floor in crude oil of $96 to $97 and we have a ceiling of $100 to $101 and we are going to continue to see volatility come in going forward. You can’t simply trade in that $3 or $4 trading range and expect anything else other than volatility to shrink.”
The most active options in electronic trading today were March $95 puts, which gained 2 cents a barrel to 25 cents at 3:04 p.m. with 2,613 lots trading. Next were March $89 puts, which rose 1 cent to 5 cents on 1,499 lots, and March $100 calls, which dropped 67 cents to 59 cents on 1,200 lots. A contract covers 1,000 barrels of crude. Puts were 54 percent of the volume.
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.
Puts accounted for 41 percent of the volume yesterday. April $120 calls were the most actively traded options, with 10,726 lots changing hands. They added 8 cents to 38 cents a barrel. The next-most active options, April $125 calls, rose 5 cents to 28 cents a barrel on volume of 6,310 lots.
Open interest was highest for December $80 puts with 41,686 contracts. Next were December $150 calls with 37,853 lots and December $100 calls with 34,547.
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