Crude oil calls surged for a second day as futures reached a two-year high on concern that Middle East oil shipments will be curtailed if the U.S. and its allies strike Syria.
Implied volatility of October calls protecting against a 10 percent rise in futures prices on the New York Mercantile Exchange jumped to 34.02 percent at 3:25 p.m. from 29.16 yesterday and 22.73 percent Aug. 26.
The most active options in electronic trading today were October $125 calls, which rose 17 cents to 31 cents a barrel at 3:33 p.m. on volume of 5,870 contracts. October $115 calls were the second-most active, advancing 46 cents to $1.25 a barrel on volume of 5,035 lots traded.
“There’s two kinds of buyers of these,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “One is buying cheap insurance for the worst-case scenario. The others are speculators buying out-of-the-money options thinking they can double their money or triple their money if there is a spike and walk away.”
At-the-money volatility for October options, a measure of expected futures swings and a key gauge of value, was 28.05 percent, the highest level this year, up from 24.67 percent yesterday. Volatility for puts covering a 10 percent drop climbed to 28.16 percent after being little changed at 25.89 percent yesterday.
“There’s still definitely a lot of concern and a lot of people that want to be protected from a spike in price,” Flynn said. “Now, options players that were looking at covering the upside risks yesterday are trying to protect from some of the downside risks that after the attack prices would fall.”
West Texas Intermediate crude for October delivery increased $1.09 to $110.10 a barrel on the Nymex, the highest settlement since May 3, 2011.
The U.S. and the U.K. said today they are prepared to take military action against Syria without authorization from the United Nations Security Council. After Russia objected to a UN resolution offered by the U.K. authorizing action to protect civilians, a State Department spokeswoman said the U.S. will take “appropriate” action without the international body’s approval.
Calls accounted for 57 percent of electronic trading volume, and made up five of the six most-active contracts. In the previous session, bullish bets made up 61 percent of the 226,077 lots traded.
October $125 calls were also the most-active options yesterday with 10,059 contracts changing hands as they gained 11 cents to 14 cents a barrel. October $115 calls, the next-most active, rose 62 cents to 79 cents on 9,769 lots.
Open interest was highest for December $80 puts, with 40,059 contracts. Next were December $90 puts with 36,543 lots and December $100 calls with 34,801.
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.
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