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Oil Options Volatility Falls as Global Factory Outlook Improves

Dec. 14 (Bloomberg) -- Crude options volatility fell as futures climbed after reports showing manufacturing gains in the U.S. and China boosted optimism that fuel demand will rise.

Implied volatility for at-the-money options expiring in February, a measure of expected price swings in futures and a gauge of options prices, was 26.04 percent on the New York Mercantile Exchange as of 2:50 p.m., down from 26.82 percent yesterday.

February-delivery crude oil advanced 81 cents, or 0.9 percent, to settle at $86.25 a barrel on the Nymex.

Futures gained as U.S. industrial output rose in November by the most in two years, according to Federal Reserve data. China’s manufacturing is expanding at a faster pace in December, according to a preliminary purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics.

The most active options in electronic trading today were January $87 calls, which slipped 11 cents to 4 cents a barrel on volume of 2,844 lots at 2:52 p.m. January $86 puts were the second-most active, with 2,360 lots exchanged as they declined 59 cents to 1 cent. January options expired at the close of floor trading today.

Bets that prices would fall, or puts, accounted for 56 percent of electronic trading volume.

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.

In the previous session, bearish bets accounted for 52 percent of the 114,064 contracts traded.

February $105 calls were the most active options yesterday with 6,877 contracts changing hands. They declined 1 cent to 9 cents a barrel. January $86 puts increased 13 cents to 60 cents on 5,193 lots.

Open interest was highest for January $105 calls, with 45,794 contracts. Next were January $60 puts at 34,922 lots, and January $110 calls with 31,399.

To contact the reporter on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

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

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