WTI Options Volatility Under 14% on Low Volume as 2013 Nears End

WTI crude options volatility held below 14 percent for a fourth day amid low year-end volume and speculation futures will remain in a tight trading range.

Implied volatility for at-the-money February WTI options, a measure of expected futures movements and a key gauge of value, was 13.77 percent at 3 p.m. on the New York Mercantile Exchange, up from 13.02 percent yesterday. A year ago today, volatility was 27.05 percent.

February futures rose 77 cents to settle at $100.32 a barrel on the Nymex. Prices have fluctuated between $96.21 and $100.75 since Dec. 16. Trading volume was 49 percent below 100-day average as of 2:34 p.m.

The lower volume as the year’s end nears, the tight trading range and a greater interest in natural gas have contributed to lower volatility for crude, said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York.

Natural gas futures have risen 32 percent this year while WTI futures are up 9.3 percent. Implied volatility for at-the-money February natural gas futures was 32.98 percent at 3 p.m. today after reaching 42.69 on Dec. 23.

“A lot of the traders have gone to trade natural gas, which is moving while the crude vol isn’t moving at all,” Lebow said. “The lack of players is a factor. Traders obviously see the market in a certain range. There’s no anxiety the market is going to break out of those ranges.”

Less Susceptible

The U.S.’s growing energy independence reduces susceptibility to large price swings when global events threaten supply. Imported crude and petroleum products will dip to 28 percent of domestic demand next year, the lowest level since 1985 and down from a peak of 60 percent in 2005, according to the Energy Information Administration’s Short-Term Energy Outlook.

“The more energy independent we are, the more a cushion of supply, the less you fear disruptions,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Puts, or bets that crude oil prices would fall, accounted for 66 percent of electronic trading volume as of 3:02 p.m. The most active options were April $70 puts, which slipped 1 cent to 3 cents on volume of 4,638 lots. The second-most active were February $95 puts, down 3 cents to 16 cents on 2,069 contracts.

Puts accounted for 72 percent of the 31,926 lots traded in the previous session. March $90 puts slipped 4 cents to 25 cents on 2,193 contracts. March $91 puts fell 6 cents to 30 cents on volume of 1,896 lots.

Open interest was highest for June $80 puts, with 34,090 contracts. Next were June $85 puts with 25,769 lots and December 2015 $120 calls with 25,368.

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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