Crude Oil Options Volatility Rises as Futures Drop on Inventory

Crude oil options volatility rose as underlying futures declined after oil inventories climbed the most in 20 months and Western nations considered releasing oil from strategic reserves.

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 24.5 percent as of 4 p.m. on the New York Mercantile Exchange, up from 24.1 percent yesterday.

Crude futures slipped after the Energy department reported that stockpiles rose 7.1 million barrels to 353.4 million last week, the largest increase since July 2010. French Industry Minister Eric Besson said the U.S. government has proposed releasing fuel from strategic stockpiles.

“You’ve got this big crude build and the possibility of an SPR release,” said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston. “Where would you put it and who’s going to be the buyer? You won’t have a draw in the shoulder season when units are down for spring maintenance, so you’re going to keep building.”

The Obama administration hasn’t decided whether to release oil from the Strategic Petroleum Reserve or made any specific proposal to allies, Josh Earnest, deputy White House press secretary, said at a briefing today in Washington.

Crude Futures Fall

Crude for May delivery fell $1.92 to $105.21 a barrel on the Nymex, the lowest level since March 22. Prices are up 6.7 percent this year on concern that tensions with Iran over its nuclear program may reduce global crude oil supplies.

The most-active options in electronic trading today were May $95 puts, which rose 8 cents to 19 cents a barrel at 4:11 p.m. with 2,635 contracts trading. May $100 puts were the second-most active with 2,445 lots changing hands. They advanced 23 cents to 66 cents a barrel.

Puts accounted for 55 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 62 percent of the 88,254 trades yesterday. June $100 puts were the most actively traded, with 3,640 lots changing hands as they fell 13 cents to $1.47 a barrel. The next-most active options, May $100 puts, declined 12 cents to 43 cents on volume of 3,266.

Open interest was highest for December $80 puts with 45,871 contracts. Next were December $150 calls with 38,297 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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