Oil Options Volatility Drops After Draghi Fails to Deliver Plan

Oil options volatility fell, following futures lower, after European Central Bank President Mario Draghi failed to detail a plan to shore up the euro by curbing rising government borrowing costs in the region.

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 30 percent at 4:10 p.m. on the New York Mercantile Exchange, down from 31.6 percent yesterday.

Oil for September delivery dropped $1.78, or 2 percent, to settle at $87.13 a barrel on the Nymex after Draghi signaled that the ECB will join forces with governments to buy sovereign bonds in sufficient quantities to remove all doubts about the future of the euro. Draghi said last week he would do whatever it takes to protect the currency, stoking speculation he would outline plans following a central bank meeting today.

“There’s renewed fears of whether we’re going to start to see a global economic slowdown,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by telephone. “Usually when the market drops this significantly, you’ll see volatility kind of move out.”

The most active options in electronic trading today were September $80 puts, which gained 5 cents to 27 cents a barrel at 4:17 p.m. with 3,922 lots trading. September $100 calls were the second-most active options, with 1,958 lots changing hands as they dropped 7 cents to 7 cents a barrel.

Bullish Bets

Calls accounted for 54 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, puts accounted for 58 percent of the 82,584 contracts traded.

September $83 puts were the most actively traded options yesterday, with 6,768 lots changing hands. They fell 13 cents to 52 cents a barrel. September $80 puts declined 6 cents to 22 cents on volume of 5,438.

Open interest was highest for December $80 puts with 42,779 contracts. Next were December $100 calls with 40,225 lots and December $120 calls with 38,712.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

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

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