Iranian risk reverses the "oil narrative," on Monday, the trading volume of "Brent crude oil call options" hit a record high, as traders urgently seek "short position protection."

The oil market is undergoing a dramatic emotional reversal, with concerns over supply disruptions triggered by protests in Iran prompting traders to buy call options on an unprecedented scale, seeking to hedge against the risk of price surges, fundamentally altering the pessimistic expectations of oversupply that dominated the market at the beginning of the year. According to Bloomberg, on Monday, the trading volume of Brent crude oil call options hit a single-day historical high, exceeding 556,000 contracts. This record follows a surge in trading last Friday, reflecting the market's heightened vigilance regarding supply risks from Iran, the fourth-largest oil producer in OPEC. Implied volatility and call option premiums have continued to rise since the weekend, reaching their highest levels since the U.S. and Israel bombed Iran in June last year. This has forced short positions betting on oversupply to urgently close their positions, with Brent crude futures rising more than 6% since last Wednesday. It is worth noting that the shift in market sentiment has been particularly sudden; just earlier this month, the outlook for a recovery in Venezuelan production was exacerbating pessimistic expectations of global oversupply, whereas now geopolitical risks have become the dominant narrative. Spread Trading Dominates the Market Monday's options trading was primarily characterized by large-scale spread trades, which provide relatively inexpensive tools for betting on sudden price surges. According to preliminary data from the Intercontinental Exchange European Futures Exchange, spread contracts for April at $74/$78 and $90/$100 each had trading volumes equivalent to 40 million barrels completed in single transactions, which is considered oversized trading in the oil options market. There were also early signs of large call spread trading before the close last Friday, including a spread contract for May at $74/$78 equivalent to 50 million barrels, laying the groundwork for Monday's explosive trading volume. These spread strategies allow traders to hedge against a range of potential outcomes, from military escalation to supply disruptions caused by protests from Iranian oil workers. Options "Skew" Shifts to Bullish The "skew" indicator for Brent crude oil second-month options has shifted in favor of call options since mid-last week, measuring the cost difference of hedging against price increases relative to price decreases. This market condition is relatively rare and typically only occurs during periods of geopolitical pressure. Consulting firm Energy Aspects noted in a report that in recent weeks, traders' long gamma exposure has been limiting price volatility. However, a significant position shift occurred in the options market last week, with a large volume of call option buying putting traders in a short gamma state, eliminating the suppressive effect on volatility. Geopolitical Uncertainty Persists Despite Tehran claiming on Monday that it has quelled the protests, unrest appears to be ongoing. According to CCTV News, on January 10 local time, reporters learned from several informed U.S. officials that President Trump recently received briefings on military strike options against Iran and is seriously considering whether to launch an attack on Iran Due to the uncertainty of the U.S. response, options provide traders with flexible hedging tools to cope with various possible scenarios, from military escalation to supply disruptions. This market dynamic highlights how oil traders are rapidly shifting from a bearish stance at the beginning of the year to a defensive positioning in the face of rapidly changing geopolitical risks