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Crude Options Volatility Falls as Futures Rally on Fed Pledge

Crude oil options volatility fell after underlying futures rallied when Federal Reserve officials pledged to keep interest rates low into late 2014.

Implied volatility for at-the-money options expiring in March, a measure of expected price swings in futures and a gauge of options prices, was 28.3 as of 3 p.m. in New York, down from 30.1 yesterday.

“It came in when we rallied,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “And we’re still range-bound.”

Crude for March delivery rose 45 cents to settle at $99.40 a barrel on the New York Mercantile Exchange, after earlier touching $97.53. Since Dec. 22, the front-month contract has traded in a range of about $6, between a low of $97.40 and a high of $103.74.

The most active options in electronic trading today were March $90 puts, with 1,425 lots changing hands at 3:06 p.m. They fell 18 cents to 35 cents. December $40 puts, the second-most active option, gained 3 cents to 18 cents with 1,145 lots trading. One contract covers 1,000 barrels of crude.

Puts accounted for 52 percent of electronic trading volume and were three of the four most-active contracts.

Previous Session

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.

Bearish options accounted for 62 percent of volume yesterday. March $90 puts were the most actively traded, with 10,716 lots changing hands as they rose 4 cents to 53 cents a barrel. The next-most active options, March $95 puts, increased 11 cents to $1.41 on volume of 4,813 lots.

Open interest was highest for December $80 puts with 39,037 contracts. Next were December $150 calls with 36,810 lots and December $100 calls with 32,757.

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