Crude Options Volatility Jumps as Futures Slide for Third Day

West Texas Intermediate crude options volatility jumped as futures slid for a third day, falling below a two-week-old trading range.

Implied volatility for at-the-money February WTI options, a measure of expected futures movements and a key gauge of value, was 18.73 percent at 2:05 p.m. on the New York Mercantile Exchange, up from 16.19 percent on Dec. 31. Volatility for puts protecting against a 10 percent drop in futures jumped to 28.83 percent from 26.23 percent, the highest level in a year.

Volatility sank to 13.02 percent on Dec. 26, the lowest since at least 2006, amid low year-end volume and speculation prices would remain range-bound through the Christmas and New Year’s holidays.

February futures fell $2.08, or 3 percent, to settle at $95.44 a barrel on the Nymex. Prices had fluctuated between $96.21 and $100.75 since Dec. 16. Trading volume was 1.4 percent above the 100-day average.

“The market’s making a big down move,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “At the end of the year, the anxiety level was clearly low.”

Calls Dominate

The most actively traded options were calls, or bets that crude oil prices would rise, accounting for 54 percent of electronic trading volume as of 2:07 p.m. The most active options were February $101 calls, which slipped 26 cents to 9 cents on volume of 3,360 lots. Second-most active were February $99 calls, down 70 cents to 29 cents on 2,977 contracts.

In the previous session, puts accounted for 59 percent of trading volume of 72,124. May $85 puts rose 10 cents to 62 cents on volume of 2,614 contracts. May $80 puts advanced 5 cents to 31 cents on 2,600 lots.

Open interest was highest for June $80 puts, with 34,094 contracts. Next were June $85 puts with 26,541 lots and March $85 puts with 25,372.

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.
LEARN MORE