The most aggressive investors are anticipating the prolongation of the oil rally into 2022. More and more bullish positions are growing above $ 100 due next year. Traders often use them to hedge positions, but more and more investors tend to use options in a leveraged way. QuikStrike, a tool that tracks positions in the options market, has detected bets on Brent at $ 200 a barrel.
The options market is often used by traders to detect trends on any asset in the medium term. With Texas oil trading above $ 82, it is becoming more and more common to find call options of 100 dollars. This operation grants the right to an investor to carry out a purchase at reduced prices if it trades above a certain level. Traders usually use both calls and put (put options) to cover long-term positions, as they have a much lower cost compared to buying an asset directly.
According to QuikStrike, a tool from CME, Chicago’s commodity market manager, used to track bullish or bearish positions, the $ 100 call is being a favorite among traders. In the context of strong rises or falls, sIt is common for the volume of options to skyrocket, with investors trying to squeeze the maximum out of the rally.
Behind the latest increases is the decision of OPEC + at the beginning of the month to keep production at bay instead of accompanying the increase in demand with the rebound in mobility. There was an increase in pumping but very limited compared to the needs of the reopening of the economies.
At the same time, oil is coming under pressure from the price of gas. In many countries, power plants have chosen to burn oil to produce energy. The prospect of a cold winter in the northern hemisphere also offers more arguments to the bulls to think that the rally will last in time.
“I had not seen bets as crazy as these in a long time,” explains Mark Benigno, of StoneX Group to The Wall Street Journal when comparing it with the price in the market. On many occasions, investors look to calls and puts to try to anticipate market sentiment. When too many call options pile up, it can be indicative of a trend reversal. But currently, there are very aggressive investors in the market who operate directly with options in a highly leveraged way, which lengthen the upward or downward trend of an asset.
QuikStrike has spotted $ 200 call options for a barrel of Brent, the benchmark crude oil rate in Europe. Today Brent has exceeded $ 86, something that had not happened for seven years. The frenzy in the crude market has seen call options trading soar to 167,000 contracts, the highest since March 2020, when prices were heading into negative territory.
For many traders, the market is in wild mode. There is a dominance in the call options market between $ 95 and $ 180, QuikStrike data shows. A hard-to-see gap between the asset’s actual price and the price where the right is triggered, known as the underlying price. Investors are betting on a more extensive oil rally, even though a slowdown in the recovery seems more than likely. But there are investors who warn that the accumulation of so many bulls often ends with a sharp turn in the market. From StoneX Group they explain that the most bullish bets were registered last year, but with the current rally they are being renewed at even higher prices, so as not to register losses.
BofA warns that a cold winter could shoot the price of oil to 100 dollars a barrel
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