Crude Options Volatility Rises as Underlying Futures Slide

Crude oil options volatility rose as underlying futures fell the most since December after manufacturing in Europe and China slowed, indicating that fuel demand may drop.

Implied volatility for at-the-money options expiring in May, a measure of expected price swings in futures and a gauge of options prices, was 25.7 percent as of 1:28 p.m. in New York, up from 24.7 percent in the previous session. The measure has declined from 30.8 on March 6.

“Volatility is getting a little bit of a boost from the selloff,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “The market got a little tired with the rally and there were some bearish headlines.”

Crude for May delivery fell $2.48, or 2.3 percent, to $104.79 a barrel at 1:27 p.m. on the New York Mercantile Exchange, after touching $104.50. Futures have gained 6 percent this year. Since Feb. 21, the front-month crude oil contract has traded in a range of $103.78 to $110.55.

A preliminary measure of Chinese manufacturing was the lowest in four months, according to HSBC Holdings Plc and Markit Economics. The preliminary 48.1 reading is a decline from a final 49.6 in February.

A euro-area composite index based on a survey of purchasing managers in both industries fell to 48.7 from 49.3 in February, London-based Markit Economics said in an initial estimate today. A reading below 50 indicates contraction.

The most-active options in electronic trading today were December $60 puts, with 2,362 lots changing hands as of 1:34 p.m. They rose 1 cent to 33 cents a barrel. May $90 puts, the second-most active options, gained 4 cents to 14 cents with 2,149 lots trading.

Puts accounted for 51 percent of electronic trading volume. One contract covers 1,000 barrels of crude.

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 106,017 trades yesterday. June $100 puts were the most actively traded, with 6,375 lots changing hands as they fell 36 cents to $1.83 a barrel. The next-most active options, May $110 calls, increased 25 cents to $1.65 on volume of 5,812.

Open interest was highest for December $80 puts with 46,116 contracts. Next were December $150 calls with 38,606 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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