David Marino and Mia Gindis
4 min read
(Bloomberg) -- Israel’s air strikes on Iran, followed by the Islamic Republic’s retaliation, rippled through markets Friday, prompting traders to pile into options for protection amid ongoing questions of long the conflict can last.
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“The escalation between Israel and Iran, including strikes on nuclear and military targets, marks a turning point in Middle Eastern geopolitics and its ripple effects are already being felt across global markets,” said Tamas Varga, an analyst at energy brokerage PVM. “The Strait of Hormuz — through which 20 million barrels of oil pass daily — now sits on a geopolitical knife’s edge.”
Here are some of the ways traders are positioning for the uncertainty gripping markets:
OIL
As tensions ratcheted up in the days leading up to the attack, some analysts had speculated that a strike could push prices well over $100 a barrel. Traders snapped up bullish call options, a pattern that went into overdrive once Israeli planes started dropping bombs after markets opened Friday in Asia.
Brent and West Texas Intermediate crude’s implied volatility soared as futures spiked as much as 14%. The panic buying of call options pushed the bullish premium to levels not seen since Russia’s invasion of Ukraine in 2022, with the retaliatory strike drawing additional bidding.
“The way speculators play it is to buy whatever calls are on the screen as fast as possible with no regard for how much they are paying,” said Robert Yawger, director of the energy futures division at Mizuho Securities USA. “Not to mention some speculators are hedging against a short position.”
The ramifications extend beyond flat price, with the shape of the forward curve changing drastically in just a few days, affecting millions of barrels of so-called WTI calendar spread options betting on the difference between delivery months. The unusual “hockey-stick” shape that reflected fears of a glut of oil next year has given way to a backwardated market, where traders pay up for immediate delivery.
Open interest in these options reached a fresh record high Friday, with the equivalent of almost 38 million barrels worth of positions added during the week across a wide range of strikes.
GOLD
The rush into gold during the tariff turmoil of April is recurring to a smaller extent as geopolitics bubble up. The one-month call skew on the SPDR Gold Shares ETF (GLD) has risen to the highest since April 16 as the metal flirts once again with a record high.
