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Put Vol Higher as ATM Implied Just Above 40%

OIL OPTIONS

Crude oil implied volatility rebounds back above 40% after just touching below for the first time since early Feb.

  • Crude volatility has been gradually falling since March despite the high market uncertainty. Global supply disruptions from Russia and various OPEC members continued to be weighed against concerns over the impact of inflation of global economies. The impact of a Chinese recovery is also unclear with the potential of a return to covid restrictions due to the zero covid policy possibly still in place into 2023.
  • The increased risk of reduced oil demand growth is reflected in the shift in the volatility surface. The implied vol of 25 delta Brent puts for August has increased to 5% above calls with Dec22 puts also now 3% higher.
  • The graph below shows the change in Aug Brent vol skew from last week:

Source: Bloomberg

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