Crude Volatility Slips as Futures Rise on Better Refining Margin

Crude options volatility declined as the underlying futures rose on speculation that increasing refinery profits from making gasoline and heating oil will bolster use of the raw material.

Implied volatility for at-the-money January options, a measure of expected futures swings and a key gauge of value, was 18.3 percent at 4:35 p.m. on the New York Mercantile Exchange, down from 18.76 yesterday.

West Texas Intermediate for January delivery climbed 97 cents to $94.49 a barrel on the Nymex. WTI crude for December delivery rose 84 cents to $93.88. December WTI options expire Nov. 15. Futures have averaged $96.92 in the past year.

Oil prices “continue to hover right around the midpoint from the last two years,” Stephen Schork, president of the Schork Group Inc. energy research firm in Villanova, Pennsylvania, said by telephone today. “We essentially had that big pop in prices in the summer, we had that correction and now the market is trying to find a home inside this range. Volatility is going to continue to fall as we settle into this range.”

Puts protecting against a 10 percent drop in prices dropped to 23.71 percent from 24.52 in the prior session. The skew, or premium of puts over calls, narrowed to 5.69 percent from 6.81 yesterday.

Puts accounted for 54 percent of electronic trading volume today. The most-active options were December $95 calls, which added 4 cents to 21 cents a barrel with 3,896 lots trading as of 4:41 p.m. New York time. December $92 puts dropped 24 cents to 18 cents on volume of 3,065 lots.

Previous Session

In the previous session, puts accounted for 59 percent of the 187,234 lots traded. December $95 calls declined 70 cents to 17 cents a barrel on 9,243 contracts. January $85 puts gained 11 cents to 29 cents on volume of 8,216 lots.

Open interest yesterday was highest for December $80 puts, with 43,234 contracts. Next were December $85 puts with 36,674 lots and December $90 puts with 36,131.

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.

Before it's here, it's on the Bloomberg Terminal.