A surge in oil options trading suggests that traders are hedging against potential supply disruptions in the Middle East. As oil prices hover around $100 per barrel, numerous December Brent crude call options, representing nearly 27 million barrels, and December U.S. crude call options, representing over 7 million barrels, have changed hands in the market.
Market participants indicate this trading flow includes both buying and selling. Some traders aim to protect against short-term price spikes, while others are covering positions after selling call options in recent weeks. Experts note that $100 call options are often seen as insurance policies, with traders hoping these options become worthless.
Brent crude prices experienced significant volatility, marked by the largest intraday fluctuation since March last year, following missile attacks from Iran on Israel and subsequent vows of retaliation. These geopolitical events unsettled the oil market, where investors had built substantial bearish positions.
The increased interest in call options has driven their value to the highest levels since mid-August. However, traders caution that these bullish positions might obscure the likely scenario of a market surplus in the coming months due to sluggish demand growth and rising production from OPEC+ and other countries.
Some contracts involve direct trading, while others are spread trades, such as buying $100 call options and simultaneously selling $120 call options, which caps the traders' potential profits in the event of oil price increases.
