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Oil Volatility Increases as Futures Fall on U.S. Budget Concern

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Nov. 21 (Bloomberg) -- Oil options volatility advanced as the underlying futures retreated on signs that lawmakers won’t agree to a budget-deficit plan in the U.S., the world’s largest crude-consuming nation.

Implied volatility for at-the-money options expiring in January, a measure of expected swings in futures and a gauge of options prices, rose to 40.5 at noon in New York, from 38.5 on Nov. 18. The 12-member, bipartisan debt-reduction committee probably will announce today that it can’t reach an agreement on deficit savings, prompting $1.2 trillion in automatic cuts, according to a Democratic aide.

“That’s helping to keep prices in motion today,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in an e-mail. “There’s also some increased risk of sharp price swings related to the short trading week due to the Thanksgiving holiday.”

The most active options contracts in electronic trading today were January $110 calls, with 4,996 lots changing hands as of 12:16 p.m. in New York. The options fell 9 cents to 46 cents a barrel. January $90 puts traded 1,445 lots, gaining 19 cents to $1.87. One contract covers 1,000 barrels of crude.

Calls accounted for 58 percent of the volume.

Oil for January delivery declined $1.34, or 1.4 percent, to $96.33 a barrel at 12:06 p.m. on the New York Mercantile Exchange.

January $90 puts were the most active options traded in the previous session, with 9,041 lots changing hands. They rose 25 cents to $1.68 a barrel. The next-most active options, January $80 puts, rose 6 cents to 47 cents on volume of 4,841.

Puts accounted for about 67 percent of 105,925 lots.

Open interest was highest for December 2012 $80 puts with 35,225 contracts. Next were December 2012 $100 calls with 31,632 and December 2012 $150 calls with 30,105.

The exchange distributes real-time data for electronic trading and releases information on floor trading, where the bulk of options trading occurs, the next business day.

To contact the reporter on this story: Justin Doom in New York at jdoom1@bloomberg.net

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

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