Traders who invested heavily in bullish oil options are now facing significant losses, as most contracts have expired worthless following Israel’s decision not to target Iran’s energy infrastructure. This decision led to a steep drop in crude prices, resulting in approximately 800,000 Brent December call options expiring without profit on Monday.
Speculation about potential disruptions in oil supplies, driven by the conflict, had previously pushed Brent options to record highs. However, fewer than 10% of contracts set to expire held any value, meaning around 32 million barrels of $90 and $100 options were wasted. Meanwhile, nearly 22 million barrels of $75 calls and 53 million barrels of $80 calls also expired worthless.
“The Middle East remains a powder keg, but the urgency to trade oil is likely over,” said Scott Shelton of TP ICAP Group Plc.
Despite this, nearly 130,000 Brent $100 calls are still outstanding for early next year, a 70% increase since September. Traders used options for both hedging and speculation, with many also shifting to bearish bets ahead of expiration.
“The market isn’t as short as it should be due to geopolitical risks,” Shelton commented, adding that any significant rally in oil prices may now be sold off.
Story via WorldOil.com