Brent Crude Put Volatility Rises as Premium Over WTI Increases

Dec. 2 (Bloomberg) --Brent crude put options rose as the international benchmark’s premium over West Texas Intermediate crude widened.

Implied volatility for puts protecting against a 10 percent decline in February Brent futures was 23.13 percent at 2:30 p.m. on the ICE Futures Europe exchange, up from 22.69 percent on Nov. 29. Calls protecting against a 10 percent gain slipped to 16.95 percent from 17.87 percent.

Brent for February settlement gained $1.72, or 1.6 percent, to $111.05 a barrel. The February contract’s premium to WTI increased 63 cents to $16.95.

“Because the Brent-WTI spread is extended so much, people playing that spread might want to buy some options,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “If you’re long Brent, you buy puts in case there’s a correction.”

At-the-money volatility for February Brent options, a measure of expected futures swings and a key gauge of value, was 18.03 percent, down from 18.2 percent in the prior session.

The three most-active Brent options today were puts, which accounted for 65 percent of the volume. March $90 puts slipped 21 cents to 20 cents a barrel and the March $100 puts dropped $1 to 84 cents. Each traded 4,000 lots. The seven options with the highest open interest as of Nov. 29 were puts.

Implied volatility for at-the-money February WTI options was 18.82 percent, down from 19.04 percent on Nov. 29.

Most Active

The most-active WTI options in electronic trading today were January $90 puts, which fell 27 cents to 29 cents a barrel with 1,886 lots trading. January $97 calls were the second-most active, advancing 10 cents to 31 cents on volume of 1,561.

Puts accounted for 52 percent of electronic trading volume today. In the prior session, bearish bets made up 52 percent of 66,049 contracts exchanged.

January $99 calls were the most-active options Nov. 29, with 4,637 contracts changing hands as they rose 1 cent to 7 cents a barrel. January $85 puts declined 3 cents to 7 cents on 3,240 lots.

Open interest on Nov. 29 was highest for June $80 puts, with 28,974 contracts. Next were January $75 puts with 27,261 lots and January $85 puts with 25,994.

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.

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

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

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