Oil Options Volatility Sinks as Futures Advance on Budget Talks

Dec. 19 (Bloomberg) -- Crude options volatility slipped as futures rose on optimism the White House and congressional Republican leaders will reach a budget deal to avert more than $600 billion in automatic tax increases and spending cuts.

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 24.09 percent on the New York Mercantile Exchange as of 3:30 p.m., down from 24.62 percent yesterday.

“You had this pretty decent up move,” said Fred Rigolini, vice president of Paramount Options Inc. in New York. “It’s end-of-the-year doldrums and most people are leery of stepping in with the fiscal uncertainty going into the end of the year.”

February-delivery crude oil advanced $1.58 to settle at $89.98 a barrel on the Nymex, the fourth consecutive increase.

Futures rose as President Barack Obama and House Speaker John Boehner negotiated to avert the so-called fiscal cliff.

The most active options in electronic trading today were February $80 puts, which fell 17 cents to 31 cents a barrel on volume of 2,062 contracts at 3:32 p.m. February $85 puts were the second-most active, with 1,934 lots exchanged as they declined 37 cents to 89 cents a barrel.

Calls Predominate

Bets that prices would fall, or puts, accounted for 54 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, bullish bets accounted for 52 percent of the 72,969 contracts traded.

February $100 calls were the most active options yesterday with 3,788 contracts changing hands. They declined 1 cent to 14 cents a barrel. June $80 puts fell 28 cents to $2.92 a barrel on 3,253 lots.

Open interest was highest for February $105 calls with 34,094 contracts. Next were February $110 calls at 24,673 lots and December 2013 $100 calls at 23,633.

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