Oil Options Volatility Rises as Futures Drop on Fed Speculation

Oil options volatility rose as futures fell amid speculation the Federal Reserve will be less likely to announce additional measures to stimulate the economy after U.S. consumer confidence and business activity unexpectedly grew.

Implied volatility for at-the-money options expiring in September, a measure of expected price swings in futures and a gauge of options prices, was 31.3 percent at 3:35 p.m. on the New York Mercantile Exchange, up from 30.1 yesterday.

Oil for September delivery fell $1.72, or 1.9 percent, to settle at $88.06 a barrel on the New York Mercantile Exchange.

A Bloomberg survey of economists showed the Fed will probably forgo a third round of large-scale asset purchases at a two-day meeting beginning today. Consumer confidence rose for the first time in five months in July and a barometer of business activity gained.

The most active options in electronic trading today were September $80 puts, which rose 14 cents to 32 cents a barrel at 3:41 p.m. with 2,981 lots trading. September $85 puts were the second-most active options, with 1,851 lots changing hands as they rose 53 cents to $1.26 a barrel.

Puts accounted for 52 percent of total 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.

In the previous session, bearish bets accounted for 51 percent of the 55,031 contracts traded.

September $80 puts were the most actively traded options yesterday, with 4,099 lots changing hands. They fell 4 cents to 18 cents a barrel. September $85 puts declined 8 cents to 73 cents on volume of 2,568.

Open interest was highest for December $80 puts with 42,408 contracts. Next were December $100 calls with 40,929 lots and December $120 calls with 38,420.

To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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