Oil Options Volatility Falls as Futures Rise

Crude-oil options volatility rose to the highest level in two weeks and underlying futures fell as manufacturing contracted in the U.S. and China and euro-region unemployment rose to a record.

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 34.93 a barrel at 1:35 p.m. on the New York Mercantile Exchange, up from 30.74 percent on June 29.

Crude oil for August delivery dropped $1.81, or 2.1 percent, to $83.15 a barrel at 1:43 p.m. on the Nymex. Today’s loss followed a jump of $7.27 on June 29 as futures surged the most since March 2009.

“Volatility is up quite a bit,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “We saw end- of-the-quarter buying coming in on Friday and now, coming in after that, you’re seeing profit-taking based on some of the sluggish economic numbers.”

Futures declined today as the Institute for Supply Management’s factory index for the U.S. slid to 49.7 in June from 53.5 in May, the first contraction since July 2009. Chinese manufacturing indexes slipped to seven-month lows, while euro- area unemployment reached the highest level on record, rising to 11.1 percent in May from 11 percent in April, the European Union’s statistics office in Luxembourg said.

Most Active

The most active oil options in electronic trading today were August $95 calls, which fell 3 cents to 11 cents a barrel at 1:47 p.m. with 2,790 lots trading. August $75 puts were the second-most active options, with 2,324 lots changing hands as they rose 13 cents to 28 cents.

Calls accounted for 58 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.

Bullish bets accounted for 62 percent of the 255,979 contracts traded in the previous session. August $92 calls were the most actively traded, with 24,992 lots changing hands. They rose 28 cents to 33 cents. The next-most active options, August $90 calls, advanced 54 cents to 60 cents on volume of 17,211.

Open interest was highest for December $80 puts with 45,195 contracts. Next were December $120 calls with 40,357 lots and December $70 puts with 38,272.

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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