Oil Options Volatility Declines as Futures Increase

Oil options volatility fell as the underlying futures rose after Federal Reserve and Bank of Japan (8301) officials suggested the central banks would continue using monetary policy to bolster economic growth.

Implied volatility for at-the-money options expiring in June, a measure of expected price swings in futures and a gauge of options prices, was 26.96 percent as of 2:56 p.m. on the New York Mercantile Exchange, down from 28.24 percent yesterday.

Volatility has fallen for the past two days as crude has surged 2.6 percent after touching $100.68 on April 10, the lowest intraday price since Feb. 15.

“Crude got practically down to $100 a barrel and that sounds like a bargain going into driving season,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “We have another leg up going into April, May and June.”

Crude for May delivery rose 94 cents, or 0.9 percent, to settle at $103.64 a barrel on the Nymex, the second consecutive increase. May oil options and futures expire next week. The June contract increased 92 cents, or 0.9 percent, to $104.10 a barrel on the exchange.

The most-active oil options in electronic trading today were May $100 puts, which fell 30 cents to 18 cents at 3 p.m. with 2,777 contracts trading. May $105 calls were the second- most active with 2,370 lots changing hands. They rose 4 cents to 55 cents a barrel.

Calls Trading

Calls 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 bets accounted for 55 percent of the 125,597 trades in the previous session. May $100 puts were the most actively traded, with 5,902 lots changing hands as they fell 73 cents to 48 cents a barrel. The next-most active options, May $105 calls, advanced 16 cents to 51 cents on volume of 5,797.

Open interest was highest for December $80 puts with 46,897 contracts. Next were December $150 calls with 38,985 lots and June $140 calls with 34,261.

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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