Oil Options Volatility Slips as Crude Declines on Italy Turmoil

Crude options volatility slipped as oil declined on concern a leadership change in Italy will disrupt efforts to curb Europe’s debt crisis.

Implied volatility for at-the-money options expiring in February, a measure of expected price swings in futures and a gauge of options prices, was 27.53 on the New York Mercantile Exchange at 4:20 p.m. New York time, up from 27.65 percent on Dec. 7.

Crude for January delivery slid 37 cents, or 0.4 percent, to $85.56 a barrel on the New York Mercantile Exchange, the lowest settlement since Nov. 15. Prices are down 13 percent this year. The February contract slipped 40 cents to $86.10.

Prices sank to a three-week low as Italian Prime Minister Mario Monti said he will resign, while his predecessor, Silvio Berlusconi, announced he will run for the premiership to roll back Monti’s budget tightening.

The most active options in electronic trading today were January $85 puts, which slipped 10 cents to 78 cents a barrel on volume of 2,750 lots. March $65 puts were next, with 2,642 lots trading hands as they fell 1 cent to 15 cents.

Bets that prices would decline, or puts, accounted for 63 percent of the electronic 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 52 percent of the 75,076 contracts traded.

February $105 calls were the most active options Dec. 7, with 7,167 lots exchanged. They fell 1 cent to 12 cents a barrel. February $70 puts followed, with 3,733 lots traded. They were unchanged at 13 cents a barrel.

Open interest was highest for January $105 calls, with 45,795 contracts. Next were January $60 puts, at 34,922 lots, and January $110 calls with 31,399.

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

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