Many option investors bet on higher oil prices and more volatility on Tuesday as the latest wave of unrest in the Middle East engulfed Libya.
Oil’s version of the popular VIX index roared higher as investors worried about the supply of petroleum from Libya, one of the world’s largest oil exporters, amid a nationwide revolt to end Libyan leader Muammar Gaddafi’s rule.
The Chicago Board Options Exchange’s Crude Oil Volatility Index .OVX, known as the “Oil VIX,” surged more than 22 percent due to concerns about sudden rises in crude oil prices.
“Savvy investors are willing to pay more for options based on the USO in hopes of capitalizing on investor anxiety in the Middle East,” said Bill Luby, a private investor in San Francisco, who writes the VIX and More blog.
The OVX is based on options of the United States Oil Fund (USO.P) managed by United States Commodity Funds. The OVX climbed 22.19 percent to 37.66, which would be its highest close since July.
Call options on Tuesday far outpaced puts in the USO, an investment vehicle traded on stock exchanges that allows non-oil trade participants exposure to oil futures movements.
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CBOE Holdings Inc. claims it is the largest option exchange in the United States. The company, in addition to its core options trading business, provides marketplaces for trading futures contracts...
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