Oil Options Volatility Falls as Budget Deal Sparks Relief Rally

Crude options volatility fell as future rose after Congress passed a bill to avert scheduled spending cuts and higher taxes that threatened to weaken the U.S. economic recovery.

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 24.16 percent on the New York Mercantile Exchange as of 3:40 p.m., down from 25.71 percent on Dec. 31. The market was closed yesterday for the New Year’s Day holiday.

February-delivery crude oil advanced $1.30, or 1.4 percent, to $93.12 a barrel on the Nymex, the highest settlement since Sept. 18, as the House passed a bill undoing income tax increases that took effect yesterday for more than 99 percent of households. The bill, already approved by the Senate, avoids more than $600 billion a year in scheduled spending reductions and tax gains known as the fiscal cliff.

“The news was not overly bullish, not something that will get us over $100, but we’ve got a little bit of stability here now and you’ve got the higher price coming into effect,” said Fred Rigolini, vice president of Paramount Options Inc. in New York.

The most active options in electronic trading today were February $100 calls, which fell 1 cent to 15 cents a barrel on volume of 2,729 contracts at 3:45 p.m. in New York. February $90 puts were the second-most active, with 1,739 lots exchanged as they declined 50 cents to 75 cents a barrel.

Bets that prices would fall, or puts, accounted for 58 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 53 percent of the 57,920 contracts traded.

March $105 calls were the most active options on Dec. 31 with 2,457 contracts changing hands. They rose 5 cents to 32 cents a barrel. February $100 calls increased 2 cents to 16 cents on 2,428 lots.

Open interest was highest for February $105 calls with 36,965 contracts. Next were March $70 puts at 29,251 lots and February $110 calls at 27,160.