Oil’s Rally Through Key Option Levels Sets Stage For More Gains
(Bloomberg) -- Crude oil's late-session surge to more than $91 a barrel on escalating geopolitical tensions may get an additional boost from more than 30 million barrels worth of bullish options that are now in the money.Â
Brent's rally brought almost 32,000 lots of June-expiring bullish call options between $90 and $91 into the money, according to data compiled by Bloomberg. Implied volatility surged to the highest in over a month and traders paid the biggest premium for calls since October.Â
Prices jumped as much as 2.2% after Israeli Prime Minister Benjamin Netanyahu said at a security cabinet meeting that his country will operate against Iran and its proxies and will hurt those who seek to harm it, despite warnings from US President Joe Biden about taking steps to protect civilians. Â
Read more: Brent Crude Hits $90 a Barrel as Middle East Tensions Escalate
Sharp price moves may force market makers to hedge the options they sold to producers and consumers. That effect, known as negative gamma, is likely to come into play as big options payouts are triggered and could fuel an even bigger rally as market makers buy futures, traders said.
Traders had piled into bullish bets over the past month on Brent crude reaching $95 a barrel as the conflict between Israel and Hamas spread across the Middle East and OPEC+ cuts tightened the market. Those contracts have now more than doubled in value as futures near that level.
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