Crude Oil Volatility Declines; June Puts Attract Most Interest

Oil options volatility decreased as the underlying futures fell a fifth day in New York, capping a 15 percent drop this week.

Implied volatility for at-the-money options expiring in June, a measure of expected price swings in futures and a gauge of options prices, was 37.8 percent as of 2 p.m. in New York, down from 39.9 percent yesterday. June $90 and $95 puts were the most active in electronic trading.

Volatility reached an 8-week high yesterday as futures plunged the most in more than 2 years.

“The correction brings an opportunity to go long through call options on longer-dated maturities,” Harry Tchilinguirian, BNP’s London-based head of commodity-markets strategy, said in a telephone interview today. “You have a number of strikes anywhere from $120 to $150 on longer-dated maturities that automatically become cheaper.”

Traders snatched up August $125 calls yesterday as futures dropped. The contract’s open interest jumped 9,968 contracts, according to Nymex data compiled by Bloomberg. That was the largest increase, followed by September $125 calls, which added 6,513 lots.

Crude oil for June delivery fell $2.62 to $97.18 a barrel, the lowest settlement on the New York Mercantile Exchange since March 15.

June Puts Active

The most active contracts in electronic trading today were June $95 puts, with 5,211 lots changing hands. They gained 47 cents to $1.66 a barrel at 3:09 p.m. June $90 puts, the next- most active option, rose 10 cents to 50 cents a barrel with 4,138 contracts trading. One contract covers 1,000 barrels of crude.

Nymex distributes real-time data for electronic trading and releases information on floor trading, where the bulk of options trading occurs, the next business day.

June $100 puts were the most active options traded in the previous session, with 26,752 lots changing hands. They increased $2.74 to $2.95 a barrel. The next-most active option, July $120 calls, fell 73 cents to 50 cents a barrel on 18,986 lots.

Open interest was highest for December 2012 $80 puts with 46,601 contracts. Next were June 2011 $150 calls with 44,097 and December 2011 $120 calls with 39,295.

(Source: http://www.bloomberg.com/news/2011-05-06/crude-oil-volatility-declines-june-puts-attract-most-interest.html)