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$1.61 gain of crude for November delivery on Nymex the highest increase in eight weeks

NEW YORK – Oil options volatility fell to the lowest level since May as the underlying futures on the New York Mercantile Exchange increased for a third consecutive day on Friday.

Implied volatility for at-the-money options expiring in 30 days, a measure of expected price swings in futures and a gauge of options prices, dropped to 28.9 per cent on Friday on the exchange, the lowest level since May 3. It was 29 per cent the day before.

Crude oil for November delivery gained $1.61 (Dh5.88), or 2 per cent, to $81.58 a barrel on the Nymex, the highest level in more than eight weeks, after economic data from the US and China bolstered optimism that demand is growing in the world's two largest energy-consuming countries.

Optimism
November $75 puts, the most active options in electronic trading on the exchange on Friday, lost 18 cents to 24 cents a barrel, or $240 a contract, with 4,536 contracts trading. November $85 calls advanced 26 cents to 55 cents on volume of 3,643 lots.

The exchange distributes real-time data for electronic trading and releases information on floor trading, where the bulk of options trading occurs, the next business day.

November $85 calls were the most active options, trading 6,250 lots. They gained 18 cents to 29 cents a barrel.

November $80 calls, the next-most-active option, rose 85 cents to $1.84 a barrel with 3,307 contracts changing hands.

Oil prices rose last week, capping their biggest weekly gain since February, after economic data from the US and China bolstered optimism that demand is growing.

Crude advanced to the highest level in eight weeks as China's purchasing managers' index gained in September at the fastest pace in four months. US consumer spending increased more than forecast in Aug-ust as incomes climbed, a Commerce Department report showed.

"Where those two countries go, the world will follow on the price side," said Roger Read, an analyst at Natixis Bleichroeder in Houston.

"Expectations are that it's no longer going to be a double-dip recession but some form of growth next year."