WTI Options Volatility Slides as Holiday to Mute Price Swings

Crude options volatility sank to the lowest level since at least 2006 amid speculation prices won’t change significantly through the Christmas and New Year’s holidays.

Implied volatility for at-the-money February WTI options, a measure of expected futures movements and a key gauge of value, fell to 15.25 percent at 2:27 p.m. on the New York Mercantile Exchange, from 15.75 yesterday.

February futures advanced 98 cents to $99.04 a barrel on the Nymex. The January contract, which expired today, rose 97 cents to $98.77, the highest settlement since Oct. 21. Prices have traded between $90 and $100 since Oct. 22.

The gains follow the Federal Reserve’s statement yesterday that in January it will pare its bond buying to $75 billion from $85 billion amid stronger economic signs. Policy makers said the target for the benchmark interest rate will probably remain near zero “well past” the time the jobless rate reaches 6.5 percent.

“After the Fed decision, all the news is basically in the market,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Today seems like more short covering than new positions. Traders aren’t worried about missing a big move because they don’t think there is going to be one.”

Puts, or bets that prices would fall, accounted for 64 percent of electronic trading volume as of 3:57 p.m.

The most-active options were February $88 puts, which declined 3 cents to 5 cents with 2,210 lots trading. February $90 puts, the second-most active, slipped 4 cents to 10 cents on volume of 1,946 lots.

In yesterday’s session, puts accounted for 54 percent of the 61,862 lots traded. February $104 calls gained 2 cents to 16 cents on 3,026 contracts. February $101 calls rose 9 cents to 57 cents on volume of 2,852 lots.

Open interest was highest for June $80 puts, with 34,127 contracts. Next were June $85 puts with 25,472 lots and December 2015 $120 calls with 25,369.

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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