Energy Stocks Jump On Supply Fears
The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) climbed 5% in premarket trading. Individual energy stocks also rose, including APA and Occidental Petroleum at 7%. Exxon Mobil gained 5% and Chevron added 4%. The moves came as oil prices rose on concerns about reduced supply. OPEC increased daily oil output by 411,000 barrels a day. This followed the disruption risk linked to the Strait of Hormuz. China’s strategic reserves and possible International Energy Agency oil stock releases were cited as possible sources of extra supply. US oil production was also expected to increase in the coming weeks.Options Get Expensive As Volatility Surges
With the market reacting to the Strait of Hormuz closure, volatility is now the most valuable asset. The Cboe Crude Oil Volatility Index (OVX) has surged above 55, a level we haven’t seen since the conflict last summer in 2025, making options on crude futures and energy stocks extremely expensive. This suggests that simply buying puts or calls will be costly, so more defined strategies are needed. For those expecting the conflict to escalate, we see this as an opportunity to use call options on the most sensitive producers like Occidental Petroleum. Buying near-term call options on OXY or the XOP ETF provides a leveraged bet that crude prices will continue to climb in the coming weeks. Given the 7% premarket jump, this is a direct play on continued geopolitical tension. However, we remember how the June 2025 conflict was sharp but short-lived, with prices retracing after two weeks. The WTI futures curve has already snapped into steep backwardation, indicating traders expect this supply crunch to ease in the coming months. A bull call spread would be a prudent way to capture further upside while capping costs due to the high implied volatility. This elevated volatility also makes selling premium an attractive, albeit risky, strategy for those who believe the situation will stabilize. Selling cash-secured puts on a robust major like Chevron (CVX) allows us to collect a high premium, with the view that the stock will not fall significantly below current levels. We note that implied volatility on XOP options is now trading at a 30% premium to its 30-day historical volatility, suggesting options are richly priced. Recent tanker tracking data shows that while OPEC announced a production increase, actual loaded barrels are only up by about 250,000 per day so far, less than promised. We have also seen the Baker Hughes rig count tick up for three consecutive weeks in the Permian Basin, but bringing new US production online takes time. This lag between announcements and actual supply suggests prices will remain supported for at least the next month, favouring short-term bullish positions. Create your live VT Markets account and start trading now.
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