Oil traders are rushing to snap up options contracts that bet on a decline in Brent crude prices, with bearish wagers reaching unprecedented levels as investors reposition after a recent sharp rally in the commodity.
Preliminary data from Intercontinental Exchange Europe's futures exchange showed that Tuesday's trading volume in Brent put options hit roughly 764,000 contracts, an all-time high. The bulk of this activity was concentrated in narrow put spreads, which are sometimes used to hedge over-the-counter binary option trades. This comes as Saudi Arabia works to restore flows through a key pipeline, while there are signs of diplomatic progress toward reopening the Strait of Hormuz.
On that day, more than 110,000 contracts changed hands for the December 70/69 dollar put spread, 40,000 for the November 93/92 dollar spread, and 38,500 for the February 70/69 dollar spread, collectively representing more than half of the total volume traded that session. November Brent crude futures settled 1.1% lower at $99.25 per barrel on Tuesday, after coming within striking distance of $110 last week.
The latest developments have also flipped bullish signals across several key market indicators. The call skew for the global benchmark crude has turned to its most pessimistic level since June, reflecting a decline in the cost of hedging against upside price risk. Meanwhile, the 9-day Relative Strength Index for Brent futures has moved out of overbought territory, having spent most of last week above that threshold.
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