Oil Options Volatility Increases as Lawmakers Seek Budget Accord

Crude oil options volatility rose amid skepticism that U.S. lawmakers will break an impasse in negotiations to avert the so-called fiscal cliff.

Implied volatility for at-the-money options expiring in January, a measure of expected price swings in futures and a gauge of options prices, was 26.94 percent on the New York Mercantile Exchange as of 3:35 p.m., up from 26.37 percent on Nov. 30.

“We saw some upside calls traded, like February $102, $105 and $110 calls,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “They’re cheap enough that people come in and take a chance on them. But there’s a lot of uncertainty in the market. I still see us being stuck in a range here from $85 to $92 to the end of the year.”

January-delivery crude oil rose 18 cents to settle at $89.09 a barrel on the Nymex.

President Barack Obama’s administration is negotiating with a divided Congress to avert a $607 billion package of automatic spending cuts and tax increases set to begin Jan. 1. The Congressional Budget Office has said failure to reach an agreement may push the economy back into a recession in 2013.

The most active options in electronic trading today were February $110 calls, which were unchanged at 11 cents a barrel on volume of 2,427 lots at 3:41 p.m. January $80 puts were the second-most active, with 2,351 lots exchanged as they declined 3 cents to 9 cents a barrel.

Bets that prices would decline, or puts, accounted for 63 percent of trading volume.

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 made up 51 percent of the 82,956 contracts traded.

March $100 calls were the most actively traded options Nov. 30 with 3,902 contracts. They were up 7 cents to $1.17 a barrel. March $70 puts fell 5 cents to 25 cents on volume of 3,873 lots.

Open interest was highest for January $105 calls, with 45,707 contracts. Next were January $60 puts, at 34,922 lots, and January $110 calls, with 31,290 contracts.

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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