Crude oil futures have traded between $102 and $109 per barrel within the last few weeks (7/19 to 8/9 2013), touching both extremes twice within that period of time. Thursday’s (8/8) 3-week low of 102.24 on the September futures contract was followed by a surge up to a 105.92 high late that day and into Friday, a 3.5% rebound.
As a direct result, crude options volatility for at-the-money options expiring in September, a measure of expected price swings in crude oil and a gauge of options value, also increased.
This market move is a great opportunity to discuss option volatility. Change in options volatility is an important component when calculating an option’s value and can shed light on possible options trading strategies to implement. When you look at option prices and consider certain strategies, knowing whether an option or set of options are “over priced” or “under priced” due to high or low options volatility affords useful information as to whether you should be selling options or buying them.
Continue reading “Erratic Price Fluctuations in Crude Oil and Rising Options Volatility”
