Oil Options Show Geopolitical Risk Premium Is Fading Fast
(Bloomberg) -- Oil options markets are indicating that traders have unwound a hefty chunk of the geopolitical premium stemming from unprecedented missile and drone attacks in the Middle East.
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For most of this month, bullish Brent call options have been trading above bearish puts as traders snapped up contracts to hedge against a spike in prices. Now, though, the inverse situation has returned, with bearish puts once again trading at a premium.
The move shows the speed at which the oil market has begun to discount any risk of further escalation in the confrontation between Israel and Iran.
Brent futures are trading near $87 a barrel, but prior to Iran’s missile barrage they touched a five-month high above $92. The drop partly reflects an easing of trader expectations that the conflict will spiral into a broader regional war.
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