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OIL OPTIONS: Crude Option Skew Switches to Put Bias as Call Volatilities Fall

OIL OPTIONS
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The crude options skews have reversed much of the move seen in early October as the market adjusts the risk premium from potential Middle East supply disruption.

  • Near term call volatilities have fallen back below puts as the futures have dropped in reaction to reports that Israel may limit retaliation against Iran to military targets.
  • Disappointing fiscal announcements and trade data from China are also weighing on prices while both OPEC and IEA this week revised global demand forecasts lower.
  • The Brent second month 25 delta call-put spread is back around -1.0% having reached a high of nearly +6.5% on Oct. 11. The WTI second month skew is today back at -1.15% from nearly +9.6% on Oct. 11.
  • Crude implied volatility has pulled back from the highest since March 2023. Brent second month volatility is today down to 36.9% and WTI is down to 41.2%.
  • Brent options volumes have ease slightly from the high levels seen during the first week of October but remain above normal. Aggregate Brent options volumes were yesterday down to 245k and WTI volumes were down to 224k yesterday.
    • Brent DEC 24 down 4.5% at 73.95$/bbl
    • WTI NOV 24 down 4.7% at 70.34$/bbl

 

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The crude options skews have reversed much of the move seen in early October as the market adjusts the risk premium from potential Middle East supply disruption.

  • Near term call volatilities have fallen back below puts as the futures have dropped in reaction to reports that Israel may limit retaliation against Iran to military targets.
  • Disappointing fiscal announcements and trade data from China are also weighing on prices while both OPEC and IEA this week revised global demand forecasts lower.
  • The Brent second month 25 delta call-put spread is back around -1.0% having reached a high of nearly +6.5% on Oct. 11. The WTI second month skew is today back at -1.15% from nearly +9.6% on Oct. 11.
  • Crude implied volatility has pulled back from the highest since March 2023. Brent second month volatility is today down to 36.9% and WTI is down to 41.2%.
  • Brent options volumes have ease slightly from the high levels seen during the first week of October but remain above normal. Aggregate Brent options volumes were yesterday down to 245k and WTI volumes were down to 224k yesterday.
    • Brent DEC 24 down 4.5% at 73.95$/bbl
    • WTI NOV 24 down 4.7% at 70.34$/bbl

 

Keep reading...Show less