Crude Options Volatility Reaches Six-Week High as Futures Fall

Crude oil options volatility rose to the highest level in six weeks as underlying futures sank to a two-week low after the European Union offered to resume negotiations with Iran over its nuclear program.

Implied volatility for at-the-money options expiring in March, a measure of expected price swings in futures and a gauge of options prices, was 30.9 as of 4 p.m. in New York, up from 30 yesterday.

“There was a little bit more excitement in the market today, and as we come off again volatility is going to increase,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

Crude for April delivery fell $2.02, or 1.9 percent, to settle at $104.70 a barrel on the New York Mercantile Exchange. Preliminary volume in electronic trading for crude oil was 627,715 contracts as of 2:40 p.m. in New York, 1.4 percent above the three-month average through yesterday.

The most active options in electronic trading today were April $100 puts, with 3,906 lots changing hands at 4:22 p.m. They rose 19 cents to 55 cents a barrel. April $105 puts, the second-most active options, increased 75 cents to $2.12 with 2,251 lots trading. One contract covers 1,000 barrels of crude.

On the trading floor, Rigolini said, there was selling of May $128 calls and of April $95 puts and $98 puts. Puts accounted for 58 percent of electronic trading volume.

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.

Bearish options accounted for 53 percent of the 61,092 trades from the previous session. April $100 puts were the most actively traded, with 3,789 lots changing hands as they fell 5 cents to 36 cents a barrel. The next-most active options, April $104 puts, lost 14 cents to $1.06 on volume of 2,105.

Open interest was highest for December $80 puts with 46,213 contracts. Next were December $150 calls with 38,727 lots and December $100 calls with 34,926.

To contact the reporter on this story: Barbara J. Powell in Dallas at bpowell4@bloomberg.net

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

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