Crude Oil Option Demand Rallied Amid War-Driven Volatility
Costs are rising in order to protect against significant volatility in oil prices due to the Israel-Hamas conflict. Even the crude prices have lowered to levels seen before the war.
A measure of the cost of placing a bet in the options market that prices will rise or fall significantly over the next month has soared since the attack on Israel on Oct. 7, according to derivatives exchange operator CME Group. The indicator has recently reached levels higher than those during the conflict between Russia and Ukraine at the beginning of 2023, and they are comparable to the record highs last reached at the beginning of the pandemic in 2020, when oil prices momentarily fell below zero.
Increasingly, traders are using short-dated options to control their exposure. The overall activity for options expiring the next Monday has quadrupled over the last month, according to CME, and currently averages about 7,000 contracts traded daily.
Source: Dow Jones, CME Group
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Sonia Valmir :
SpyderCall : good post. I'm wondering if the recent selling in oil is a liquidity grab by the market to take in all of that increased premiums on the contracts or something like that. Often, I will see the biggest volume candles appear near the peaks and troughs in price action. Could this have been one of those traps? The Isreal-Hammas oil trap?
SpyderCall : personally, I was thinking this conflict would lead to higher oil prices. But the charts so far are pointing the other direction. Possibly fears of reduced future growth, lifted Venezuelan sanctions, and a general overheated rally could be the cause of all of the selling. Who knows for sure?
