Supply Disruption Concerns and Volatility
We are seeing WTI prices jump on the renewed closure of the Strait of Hormuz, a critical chokepoint for global energy. Around 21 million barrels of oil, representing over a fifth of the world’s daily supply, transit this waterway. The market is right to be concerned about a significant supply disruption. Given the escalating rhetoric between the US and Iran, we expect implied volatility in crude options to surge in the coming weeks. This makes strategies that profit from price swings, such as long straddles or strangles, potentially attractive for capturing this instability. The breakdown of peace talks suggests this tension will not resolve quickly.Options Positioning and Strategic Outlook
We believe the path of least resistance for WTI is higher, with a test of the $80 level looking imminent. Historical precedent from similar Middle East flare-ups, like the 2019 tanker attacks which caused a 15% price spike in a single day, shows that prices react sharply to threats in this region. With US commercial crude inventories already trending below the five-year average according to recent EIA data, any real supply cut will be felt immediately. Our focus should be on near-term call options, specifically looking at the August and September contracts to allow time for this situation to play out. Buying calls or bull call spreads provides leveraged exposure to the upside while defining our maximum risk to the premium paid. This is a prudent way to position for a potential supply shock without the unlimited risk of a long futures contract.Start trading now — click here to create your real VT Markets account.
