I highlighted the initial Libya induced race into oil options about three weeks ago in And You Thought Egypt Moved Oil. After mentioning the elevated state of the “Oil VIX” and the steepness of the volatility skew in March options, I concluded:
While we may yet see a further increase in both oil and implied vol, I suspect the time to fade is looming closely on the horizon.
While some individuals venture into the options mart to express a directional bias they possess on a particular security, they usually pickup some exposure to volatility along the way. Like white on rice, fluctuations in volatility are an integral part of option pricing. It just comes with the territory. Option players, whether they like it or not, are also expressing a bias on volatility.
February VIX options and futures expired this morning with the settlement value coming in at 16.49. While I normally post my volatility thoughts a week or so before expiration, I avoided doing so this go around primarily because I didn't see anything interesting. If I fail to discern an edge in any environment I don't mind being the first to park myself on the sidelines.
Now that two weeks have passed since Egypt’s civil unrest really started to gain traction as a catalyst in the commodities arena, oil has returned to the scene of the crime. The initial rally in crude from $85 to $93 served as yet another example that geopolitical risk is still a major factor influencing oil prices.