This options trade is a bet on oil prices falling once traffic picks up in the Strait of Hormuz
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Crude oil remains elevated after more than 40 emotion-filled days of the Iranian conflict. If the Islamabad talks , lead by Vice President JD Vance , allow for a full reopening of the Strait of Hormuz, the “geopolitical risk premium,” which has been keeping oil close to $100 a barrel, could disappear quickly. I want to use options in U.S. Oil Fund to capture this half-glass full perspective of crude oil going lower this month. USO YTD mountain U.S. Oil Fund year to date Oil traders have been more suspect of an Iranian resolution than equity traders. Despite the S & P 500 significantly recovering from the correction in March , and now sitting just 2% from all-time highs, the oil market is much more cautious — or arguably pessimistic — on the Iranian conflict resolving soon. This contrast in views is solely predicated on the Strait of Hormuz not seeing traffic flow anymore. In the event tanker traffic begins to flow again, West Texas Intermediate oil futures should drop back into the $80s, or possibly $70s, short term. May crude oil futures traded just under $100 per barrel Friday, versus about $67 before the war began. The trade: Buying a put spread Bought the April 22 $120 USO put for $4.75 Sold the April 22 $110 USO put for $1.50 This debit spread will cost a trader $3.25, or $325 per one spread. USO was trading just under $126 when this trade was executed. Notice the expiration of this put spread is right after the two-week ceasefire deadline with Iran. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.