Oil Options Volatility Falls as Crude Drops Third Week in a Row

Crude oil options volatility slid for a second day as the underlying futures declined on concern that supply is exceeding demand.

Implied volatility for options expiring in November, a measure of expected price swings in futures and a gauge of options prices, was 27.8 percent as of 4:05 p.m. New York time, down from 29.6 percent the day before.

Crude oil for November delivery fell $1.83, or 2 percent, to settle at $89.88 a barrel on the New York Mercantile Exchange. Futures declined 2.5 percent this week, capping the longest run of weekly decreases since June, after the Energy Department reported Oct. 3 that U.S. crude output rose to 6.52 million barrels a day last week, the most since December 1996.

The most-active options in electronic trading today were December $85 puts, which rose 27 cents to $1.60 a barrel at 4:13 p.m. with 1,768 lots trading. December $90 puts were the second- most active, with 1,647 lots changing hands as they rose 56 cents to $3.42 a barrel.

Bets that prices would rise accounted for 51 percent of the 38,873 contracts in electronic trading. One contract covers 1,000 barrels of oil.

The exchange distributes real-time data for electronic trading and releases information the next business day on open- outcry volume, where the bulk of options activity occurs.

In the previous session, bullish bets accounted for 57 percent of the 150,218 contracts exchanged.

December $100 calls were the most active options, with 12,417 contracts trading while rising 46 cents to $1.10 a barrel. November $80 puts were second-most active, with 6,000 contracts changing hands. They fell 19 cents to 5 cents a barrel.

Open interest was highest for December $120 calls with 50,527 contracts. Next were December $80 puts with 47,084 contracts.

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

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net