Oil prices have seen wild moves in recent days amid increasing violence in the Mideast, but the options market is telling us the roller-coaster ride may be over.
"The option activity has been huge all week. While people are still bullish crude, it has settled down to a more reasonable level," according to Jim Iuorio, Director at TJM Institutional Services.
His read on the options market is that oil could hit the $115 level.
Earlier in the week, as
violence in Libyamounted, 3000 of the Nymex futures Dec. 200 calls were bought, Iuorio said — that represents
three millionbarrels of crude. But yesterday, although calls traded furiously, price levels were more reasonable. Also, the
United States Oil Fund ETF, or USO,saw buying in April 44 and 45 calls. A price of 44 for the
USOequates to about a $107 per barrel of oil, and 45 equates to a $109 price per barrel, Iuorio said. March 44 calls were also bought.
Volatility in oil remains until prices stabilize, however.
Volatility in oil gauges like the OIH Oil Services Holders ETFhas risen sharply since revolutions began cropping up in the Mideast, up about 30% since the beginning of February, according to Brian Stutland, President of Stutland Equities and Options Action contributor.
"The OIH is trading at the lower end of this recent uptrend," Stutland said. "If oil hangs down around $95, the OIH should come down a little and the recent OIH uptrend might stabilize lower to sideways."
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