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Oil Volatility Declines as Futures Gain on U.S. Supply Decrease

Dec. 21 (Bloomberg) -- Oil options volatility fell as the underlying futures rose after the Energy Department said U.S. inventories declined the most in a decade.

Implied volatility for at-the-money options expiring in February, a measure of expected swings in futures and a gauge of options prices, slipped to 32.9 percent at 12:30 p.m. in New York from 34.88 percent yesterday. Oil gained as much as 2.1 percent after the department said supplies fell 10.6 million barrels to 323.6 million last week, the largest barrel drop since Feb. 16, 2001.

The most active options contracts in electronic trading today were February $95 puts, with 583 lots changing hands as of 11:49 a.m. in New York. The options fell 57 cents to $2.17 a barrel. February $85 puts traded 549 lots, dropping 17 cents to 44 cents. One contract covers 1,000 barrels of crude.

Oil for February delivery increased $1.13, or 1.2 percent, to $98.37 a barrel at 12:36 p.m. on the New York Mercantile Exchange.

February $90 puts were the most active options traded in the previous session, with 4,124 lots changing hands. They declined 95 cents to $1.33 a barrel. The next-most active options, February $85 puts, dropped 51 cents to 61 cents on volume of 3,085 contracts.

Open interest was highest for December 2012 $150 calls with 37,832 contracts. Next were December 2012 $80 puts with 37,059 contracts and December 2012 $100 calls with 32,199.

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

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

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

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