Oil’s Implied Volatility Rises to 22-Year High on Price Moves
By Margot Habiby
Dec. 10 (Bloomberg) -- Implied volatility for January crude oil, the major factor in determining options prices, rose to the highest in more than 22 years yesterday in a sign that traders anticipate more big moves in oil futures.
Implied volatility, a gauge of price swings in oil for future delivery that indicates how much traders are willing to pay to bet on the amount, rose to 114.41, the highest since at least 1986, according to data released today by the New York Mercantile Exchange.
“Even though prices have fallen dramatically, we’re still seeing daily ranges that are $3, $4, $5 a barrel, which is not that different from the daily ranges we were seeing at $130 a barrel,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Of course, now as a percentage of the price, that’s a bigger swing.”
Crude oil for January delivery rose $1.45, or 3.4 percent, to $43.52 a barrel at the 2:53 p.m. close of Nymex floor trading. Oil prices have tumbled 70 percent since reaching a record $147.27 on July 11.
Futures rose as high as $46.17 a barrel today after Russia indicated it may join OPEC efforts to bolster prices. Energy Minister Sergei Shmatko said Russia will announce proposals to cut output by Dec. 17, when the Organization of Petroleum Exporting Countries meets, Interfax said.
February futures rose $1.36, or 3.1 percent, to $46.02 a barrel. Implied volatility for less-heavily traded February oil was 96.62 yesterday, also a 22-year high for the second-most active trading month. January oil options expire Dec. 16.
In electronic trading of Nymex oil options, January $48 calls, bets that oil will rise above that level, and January $42 puts, bets that it will fall below that level, were the most active today.
January Calls
January $48 calls rose 23 cents to settle at $1.03 a barrel, or $1,030 a contract, at 4:20 p.m. on volume of 248 lots. January $42 puts fell 78 cents to $1.84 a barrel, or $1,840 a contract, on volume of 221 contracts. March $65 calls, the third-most active contract, gained 28 cents to $2.42 a barrel, or $2,420 a contract. Volume was 213 lots. One contract is for 1,000 barrels of oil.
Yesterday, April options were the day’s most active. April $65 call options jumped to 5,671 contracts in floor trading from 108 contracts the day before. The options fell 26 cents to $3.05 a barrel, or $3,050 a contract. April $45 put options rose 78 cents to $5.99 a barrel, or $5,990 a contract, on volume of 5,000 lots, up from 9 the day before.
Other active contracts yesterday included February $70 calls, February $45 puts and January $40 puts.
The Nymex distributes real-time data on electronic trading of crude oil options. Most information on floor trading, where the bulk of trading occurs, isn’t released until the next business day. The delayed data include overall volumes and open interest. The exchange releases a settlement price at the end of each business day.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
By Margot Habiby
Dec. 10 (Bloomberg) -- Implied volatility for January crude oil, the major factor in determining options prices, rose to the highest in more than 22 years yesterday in a sign that traders anticipate more big moves in oil futures.
Implied volatility, a gauge of price swings in oil for future delivery that indicates how much traders are willing to pay to bet on the amount, rose to 114.41, the highest since at least 1986, according to data released today by the New York Mercantile Exchange.
“Even though prices have fallen dramatically, we’re still seeing daily ranges that are $3, $4, $5 a barrel, which is not that different from the daily ranges we were seeing at $130 a barrel,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Of course, now as a percentage of the price, that’s a bigger swing.”
Crude oil for January delivery rose $1.45, or 3.4 percent, to $43.52 a barrel at the 2:53 p.m. close of Nymex floor trading. Oil prices have tumbled 70 percent since reaching a record $147.27 on July 11.
Futures rose as high as $46.17 a barrel today after Russia indicated it may join OPEC efforts to bolster prices. Energy Minister Sergei Shmatko said Russia will announce proposals to cut output by Dec. 17, when the Organization of Petroleum Exporting Countries meets, Interfax said.
February futures rose $1.36, or 3.1 percent, to $46.02 a barrel. Implied volatility for less-heavily traded February oil was 96.62 yesterday, also a 22-year high for the second-most active trading month. January oil options expire Dec. 16.
In electronic trading of Nymex oil options, January $48 calls, bets that oil will rise above that level, and January $42 puts, bets that it will fall below that level, were the most active today.
January Calls
January $48 calls rose 23 cents to settle at $1.03 a barrel, or $1,030 a contract, at 4:20 p.m. on volume of 248 lots. January $42 puts fell 78 cents to $1.84 a barrel, or $1,840 a contract, on volume of 221 contracts. March $65 calls, the third-most active contract, gained 28 cents to $2.42 a barrel, or $2,420 a contract. Volume was 213 lots. One contract is for 1,000 barrels of oil.
Yesterday, April options were the day’s most active. April $65 call options jumped to 5,671 contracts in floor trading from 108 contracts the day before. The options fell 26 cents to $3.05 a barrel, or $3,050 a contract. April $45 put options rose 78 cents to $5.99 a barrel, or $5,990 a contract, on volume of 5,000 lots, up from 9 the day before.
Other active contracts yesterday included February $70 calls, February $45 puts and January $40 puts.
The Nymex distributes real-time data on electronic trading of crude oil options. Most information on floor trading, where the bulk of trading occurs, isn’t released until the next business day. The delayed data include overall volumes and open interest. The exchange releases a settlement price at the end of each business day.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
