Options Bet Sparks Oil Market Volatility Amid Fears of Iran Conflict

Oil Traders on High Alert as Huge Options Bet Rattles Market

Oil traders are on edge following a massive options bet on Brent crude prices plummeting, amidst ongoing concerns about unusual trading flows and the Iran war headlines. The huge bet, which is equivalent to 134 million barrels of Brent crude oil, was placed in a single $91/$90 put spread transaction on Tuesday, according to data compiled by Bloomberg.

The buyer of the spread could potentially profit as much as $129 million if July futures tumble roughly 19% from their current level by the May 26 expiration. While the purpose of the trade remains unclear, it is often used as a hedge for over-the-counter binary, or digital, option trades. Another possible use is hedging an event-contract trade on a prediction market such as Kalshi or Polymarket.

Despite the ongoing US-Iran conflict, which has entered its 12th week, traders have consistently priced in the possibility of an abrupt deescalation, including a deal under which Iran reopens the key Strait of Hormuz. The call skew, or premium traders are willing to pay for options betting on a further rally, has shrunk to the smallest level since before the conflict.

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However, the large and hard-to-explain volumes of oil trades have raised eyebrows in a market already on edge. Multiple instances of well-timed oil trades ahead of proclamations or social media posts by President Donald Trump have sparked market-wide speculation and even prompted a Department of Justice probe. Even as firm evidence remains elusive, traders surveyed by Bloomberg report declining confidence in the oil market's integrity, compounding risk-off sentiment in an already volatile geopolitical environment.

The additional volumes of July $92/$90 put spreads traded on ICE and CME Group have further heightened concerns about the oil market's integrity. With the ongoing uncertainty and speculation surrounding the Iran conflict, oil traders are likely to remain on high alert in the coming weeks.