Oil Options Volatility Slips Below 25% on Budget Talk Optimism

Crude options volatility slipped below 25 percent as futures rose on optimism that the White House and Congressional Republican leaders will reach a budget agreement in time to avoid the so-called fiscal cliff.

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 24.95 percent on the New York Mercantile Exchange as of 3:55 p.m., down from 25.84 percent yesterday.

February-delivery crude oil advanced 73 cents to settle at $88.40 a barrel on the Nymex, the third consecutive increase.

“We’re getting near the end of the year and people are covering positions and crude has been in such a tight trading range for the entire month, so people lost interest,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Futures rose as President Barack Obama and House Speaker John Boehner negotiated to avert more than $600 billion in automatic tax increases and spending cuts set for January. Boehner said today he expects to bring legislation before the House by the end of the week.

The most active options in electronic trading today were February $115 calls, which were unchanged at 4 cents a barrel on volume of 3,221 at 3:54 p.m. March $75 puts were the second-most active, with 1,114 lots exchanged as they declined 8 cents to 57 cents a barrel.

Calls Predominate

Bets that prices would rise, or calls, accounted for 53 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 59 percent of the 90,761 contracts traded.

February $75 puts were the most active options yesterday with 7,497 contracts changing hands. They declined 2 cents to 23 cents a barrel. February $70 puts were unchanged at 8 cents on 7,390 lots.

Open interest was highest for February $105 calls with 32,795 contracts. Next were February $110 calls at 23,999 lots and December 2013 $100 calls at 23,633.

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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