US President Donald Trump told ABC News on Monday that he expects an agreement with Iran “over the next week” to extend the ceasefire and reopen the Strait of Hormuz. The comments followed his intervention to stop an escalation involving Israeli forces and Hezbollah in Lebanon, after talks he said still leave some details unresolved.
Trump said he called Israeli Prime Minister Benjamin Netanyahu and requested that a major raid on Beirut not proceed, adding that Israeli troops were turned around. Hezbollah later claimed several attacks on Israeli targets in southern Lebanon, while the Israeli military said it intercepted two projectiles fired from Lebanon into Israeli territory. In markets, West Texas Intermediate was up 4.35% on the day at $90.65 at the time of writing.
Market Uncertainty And Volatility Response
Given the conflicting reports, we see the market is driven by uncertainty, not optimism. The president’s words suggest de-escalation, but ongoing military actions and contradictions from allies tell a different story. This creates a classic high-volatility environment where oil prices could swing dramatically on the next headline.
The market’s skepticism is reflected in the price action, and we expect implied volatility to remain elevated in the coming weeks. The CBOE Crude Oil Volatility Index (OVX) has likely surged past 50, a level indicating significant market stress and the pricing-in of a large move. This makes outright directional bets, like simply buying or selling futures, exceptionally risky right now.
Strategic Trading Amid Geopolitical Tension
We have seen this pattern before during the lead-up to the 2015 Iran nuclear deal, where every rumor of progress or failure caused sharp price swings in crude. Historical data from that period shows that WTI prices eventually dropped over 20% as the deal became more certain and the market priced in the return of Iranian supply. A similar sharp decline could occur now if a credible agreement to reopen the Strait of Hormuz is signed.
The stakes are incredibly high, as the Strait of Hormuz still accounts for the transit of roughly 20% of global petroleum consumption. A guaranteed reopening would flood the market with supply and confidence, likely pushing WTI crude back towards the low $80s or even high $70s. For this reason, we are looking at buying out-of-the-money put options as a way to profit from a sudden, positive resolution.
Conversely, a definitive collapse of these talks could easily send crude prices above $100 per barrel as the risk premium skyrockets. Recent data already shows shipping insurance premiums for tankers in the Persian Gulf have more than doubled in the past month, reflecting the tangible risk. Therefore, holding some call options provides a necessary hedge against a severe escalation of the conflict.
Ultimately, we believe the best strategy is to trade the volatility itself rather than picking a direction. We are positioning for a significant price move, regardless of whether it is up or down, by using strategies like long straddles or strangles. This allows us to capitalize on the uncertainty, which we see as the only true certainty in the market for the next two to three weeks.
