Oil Call Options hit Record Volume! ETFs & Bull Call Spread Strategy for You

1. Oil Call Option Volumes Are Soaring

After Israel vowed to respond to missile and drone attacks from Iran, trading volume of crude oil call options surged to an all-time high.

On Monday, trading volume of Brent crude oil call options approached 350,000 contracts, surpassing the record set in 2019. The premiums for these contracts relative to put options also rose to the highest level since October.

Source:Bloomberg

According to market sources, the majority of trades are focused on establishing new bullish positions and transferring existing contracts bought in the weeks leading up to the Iranian attacks. Open interest has seen an increase.

With ongoing unrest in the Middle East, coupled with robust demand and tight supply, Brent crude futures prices have surged to around $90 per barrel, hitting a five-month high.

So far this year, open interest for crude oil call options has consistently exceeded that of put options almost every month.

Source:Bloomberg

2. What are some suitable strategies?

2.1 Top Oil ETFs for 2024

During geopolitical tensions, oil and gold tend to perform well. Here are some oil ETFs worth considering:

• $United States Oil Fund(USO)$ : Tracks daily percentage changes in WTI spot prices.

• $iPath Pure Beta Crude Oil ETN(OIL)$ : Diversified product focusing on the oil and gas industry ( $BP PLC(BP)$ $Royal Dutch Shell PLC(RDS.A)$ $Total SA(TTE)$ $Statoil ASA(STO)$ $Eni SpA(E)$ ).

• $ISHRS OIL & GAS EXPL & PROD ETF USD ACC(IOGP.UK)$ : Tracks the performance of the world's largest companies involved in oil and gas exploration and production.

2.2 Bull Call Spread Strategy for Bullish Oil Market

A Bull Call Spread involves buying a lower strike call option while simultaneously selling a higher strike call option. It's an evolved version of buying call options. By selling out-of-the-money call options, the strategy earns additional premium income, reducing the net premium outlay and shifting the breakeven point to the left, thus increasing the probability of profit. Essentially, it's a low-cost strategy for buying call options.

With $United States Oil Fund(USO)$ currently trading at $81.33 per share, investors anticipate its price to rise above $85 per share by the May 10th expiration date, but not exceeding $90 per share.

Investors can buy one USO call option contract expiring on May 10th with a strike price of $85 (100 shares per contract) for a premium of $1.52, while simultaneously selling one USO call option contract expiring in March with a strike price of $90 (100 shares per contract) for a premium of $0.8, thus constructing a Bull Call Spread combination.

If USO rises as expected, the maximum profit would be $428, and if the judgment is wrong, the maximum loss would be $72. By using option strategies, going long on oil becomes a risk-controlled investment approach.

Tigers, what are your thoughts on oil prices? Would you consider going long on oil?[Miser][Miser]