Crude Options Volatility Slips as Crude Trades Back in Range

Crude options volatility slipped, from a four-week high as futures dropped back into a trading range they had broken out of on March 25.

Implied volatility for at-the-money options expiring in May, a measure of expected price swings in futures and a gauge of options prices, was 19.66 percent at 2:45 p.m. on the New York Mercantile Exchange. Volatility yesterday reached 20.22 percent, the highest level since March 6. Volatility for options expiring in June sank to 19.65 percent from 20.51 percent yesterday.

“We had really heavy volume and we saw a pop in volatility with a lot more puts traded than calls,” said Jim Colburn, a vice president and energy options broker at Jefferies Bache LLC in New York. “You’re seeing a little pause in the move as you flushed a lot of short-option players out and crude trading back into the trading range.”

West Texas Intermediate crude for May delivery fell 55 cents to settle at $92.70 a barrel on the Nymex. From Feb. 25 to March 22, May futures traded between $89.78 and $94.90 before rising the next five days to an intraday high of $97.80. Prices have fallen three consecutive days.

Puts protecting against a 10 percent drop in futures were trading at 27.7 percent volatility, compared with 22.7 percent for calls betting on a 10 percent rise in prices. The skew was less than 1 percent a week ago.


The most-active options in electronic trading today were June $90 puts, which slipped 4 cents to $1.31 a barrel on volume of 3,147 contracts at 2:56 p.m. May $90 puts were the second-most active, with 2,872 lots traded. They fell 2 cents to 44 cents a barrel.

Bets that prices would fall accounted for 56 percent of electronic trading volume. Puts made up 64 percent of yesterday’s volume of 230,853 contracts.

May $88 puts were the most active options traded yesterday, with 16,782 contracts changing hands. They rose 8 cents to 21 cents a barrel. May $90 puts advanced 16 cents to 46 cents on 15,464 lots.

Open interest was highest for December $105 calls with 36,084 contracts. Next were December $100 calls with 34,415 and May $85 puts at 33,026.

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.

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