Crude Options Volatility Falls as Oil Futures Advance

Crude-oil options volatility declined to the lowest in three weeks as underlying futures rose on speculation that the Federal Reserve will do more to boost the economy.

Implied volatility for at-the-money options expiring in August, a measure of expected price swings in futures and a gauge of options prices, was 29.6 percent at 3:55 p.m. on the New York Mercantile Exchange, down from 31.7 percent yesterday. Volatility reached 40.6 percent on June 1, the highest level since Oct. 20.

Crude oil for August delivery gained 75 cents, or 0.9 percent, to settle at $84.35 a barrel on the Nymex.

The policy-setting Federal Open Market Committee will issue a statement following the conclusion of two days of meetings that began today. The Fed’s Operation Twist program, in which it’s selling $400 billion of Treasuries maturing in three years or less and buying an equal amount of bonds with a maturity of six years to 30 years to cap borrowing costs, is set to expire this month.

The most active oil options in electronic trading today were August $100 calls, which fell 2 cents to 8 cents a barrel at 4:02 p.m. with 2,992 lots trading. August $90 calls were the second-most active options, with 1,986 lots changing hands as they slipped 2 cents to 70 cents.

Calls accounted for 57 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.

Puts accounted for 54 percent of the 102,878 contracts traded in the previous session. August $100 calls were the most actively traded, with 7,380 lots changing hands. They fell 5 cents to 10 cents. The next-most active options, August $90 calls, lost 43 cents to 72 cents on volume of 5,779.

Open interest was highest for December $80 puts with 49,971 contracts. Next were December $100 calls with 39,880 lots and December $70 puts with 37,684.

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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