Crude Options Volatility Climbs as Futures Slip for Second Day

West Texas Intermediate crude options volatility rose as futures fell for a second day since reaching $100 a barrel on Dec. 27.

Implied volatility for at-the-money February WTI options, a measure of expected futures movements and a key gauge of value, was 16.12 percent at 2:25 p.m. on the New York Mercantile Exchange, up from 14.48 percent yesterday.

Volatility sank to 13.02 percent on Dec. 26, the lowest since at least 2006, amid low year-end volume and speculation prices would remain range-bound through the Christmas and New Year’s holidays.

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

“Going into the end of the year, there seems to be a sense of calm in the oil market,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “They’re less worried about a major disruption with the boom in U.S. production.”

February futures fell 87 cents to settle at $98.42 a barrel on the Nymex. On Dec. 27, they closed above $100 for the first time since Oct. 18. Prices fluctuated between $96.21 and $100.75 since Dec. 4. Trading volume was 57 percent below the 100-day average at 2:32 p.m.

Puts Dominate

Puts, or bets that crude oil prices would fall, accounted for 64 percent of electronic trading volume as of 2:29 p.m. The most active options were February $104 calls, which slipped 2 cents to 8 cents on volume of 1,996 lots. Second-most active were June $75 puts, up 6 cents to 26 cents on 1,984 contracts.

In the previous session, trading volume of 52,516 was almost evenly divided between calls and puts. February $100 calls dropped 56 cents to 85 cents on volume of 2,996 contracts. March $100 calls declined 53 cents to $1.78 on $1,713 lots.

Open interest was highest for June $80 puts, with 34,093 contracts. Next were June $85 puts with 26,370 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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