Oil Options Volatility Falls as Futures Rise on Budget Optimism

Crude options volatility fell as the underlying futures rose on optimism that a U.S. budget agreement will be reached.

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 25.69 percent on the New York Mercantile Exchange as of 3:45 p.m., down from 26 percent on Dec. 14.

February-delivery crude oil advanced 42 cents, or 0.5 percent, to settle at $87.67 a barrel on the Nymex.

Prices gained as House Speaker John Boehner proposed raising tax rates on household incomes above $1 million a year in exchange for containing entitlement program costs. Boehner previously opposed higher rates for any income level. President Barack Obama, who wants increased rates to start at $250,000, is considering a concession on Social Security cost-of-living advances, according to two people familiar with the talks.

The most active options in electronic trading today were February $75 puts, which slipped 2 cents to 23 cents a barrel on volume of 4,297 lots at 3:55 p.m. February $80 puts were the second-most active, with 3,226 lots exchanged as they declined 11 cents to 60 cents.

Bets that prices would fall, or puts, accounted for 57 percent of 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, bearish bets accounted for 53 percent of the 102,558 contracts traded.

February $70 puts were the most active options Dec. 14 with 6,734 contracts changing hands. They declined 2 cents to 8 cents a barrel. February $78 puts fell 12 cents to 47 cents on 6,389 lots.

Open interest was highest for February $105 calls, with 31,773 contracts. Next were December 2013 $100 calls with 23,633 lots and December 2013 $150 calls with 23,335.

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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