Oil Options Volatility Rises as Deadline Nears on Budget Deal

Crude options volatility rose as the deadline neared for reaching a federal budget deal before automatic spending cuts and tax increases take effect.

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 25.56 percent on the New York Mercantile Exchange as of 2:55 p.m., an increase from 24.95 percent yesterday.

February-delivery crude oil declined 7 cents to settle at $90.80 a barrel on the Nymex. Prices have fallen 8.1 percent this year.

President Barack Obama was set to propose a scaled-back fiscal package at a meeting today with congressional leaders to avert tax and spending changes that could trigger a recession in 2013, a Democratic aide with knowledge of the talks said.

The most active options in electronic trading today were February $85 puts, which fell 1 cent to 52 cents a barrel on volume of 2,453 contracts at 3 p.m. in New York. February $95 calls were the second-most active, with 1,252 lots exchanged as they held steady at 65 cents a barrel.

Bets that prices would fall, or puts, accounted for 64 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 62 percent of the 80,786 contracts traded.

February $80 puts were the most active options yesterday with 7,325 contracts changing hands. They fell 2 cents to 17 cents a barrel. February $72 puts were unchanged at 3 cents a barrel on 5,529 lots.

Open interest was highest for February $105 calls with 36,976 contracts. Next were March $70 puts at 29,037 lots and February $110 calls at 26,147.

To contact the reporter on this story: Barbara Powell in Dallas at bpowell4@bloomberg.net

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

Bloomberg reserves the right to edit or 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.