Crude Oil Options Volatility Gain as House Scraps Vote

Oil options volatility rose for the first time in a week as futures sank on concern U.S. lawmakers will fail to reach a budget deal after House Republican leaders scrapped a plan for higher taxes on top earners.

Implied volatility for at-the-money options expiring in February, a measure of expected price swings in futures and a gauge of options price, jumped to 25.02 percent at 3:20 p.m. on the New York Mercantile Exchange from 23.62 percent yesterday.

Crude oil for February delivery fell $1.47 to settle at $88.66 a barrel on the New York Mercantile Exchange, the biggest drop since Dec. 6. Futures sank from a two-month high after House Speaker John Boehner canceled a planned vote to allow higher tax rates on annual income above $1 million.

More than $600 billion per year in U.S. spending cuts and tax increases are set to start in January unless an agreement is reached. House members and senators won’t vote on the end-of- year budget issues until after Christmas, giving them less than a week to reach agreement to avert a budget crisis.

The most active options in electronic trading today were February $85 puts on volume of 1,981 contracts. They gained 32 cents to $1.10 a barrel at 3:36 p.m. The second-most active, with 1,743 lots exchanged, were February $78 puts, which rose 10 cents to 27 cents a barrel.

Bets that prices would fall, or puts, accounted for 58 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. deteriorating.

Bearish Bets

In the previous session, bearish bets accounted for 57 percent of volume.

February $67 puts, which were unchanged at 2 cents a barrel, were the most active options yesterday, with 6,001 contracts changing hands. February $102 calls fell 1 cent to 11 cents a barrel on 3,433 lots.

Open interest was highest for February $105 calls with 35,729 contracts. Next were February $110 calls at 25,184 lots and March $70 puts at 23,441.

To contact the reporter on this story: Christine Harvey in New York at charvey32@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.