Oil Options Costs Soar With Russia-Ukraine Tensions Rising

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(Bloomberg) — Oil options costs skyrocketed along with futures prices as tensions between Russia and Ukraine ratcheted up.

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The U.S. believes Russia could take offensive military action or attempt to spark a conflict inside Ukraine as early as next week, before the Winter Olympics in Beijing wrap up, National Security Advisor Jake Sullivan said. Russia has repeatedly rejected charges it plans to invade Ukraine.

The news came at a time when most oil traders had wrapped up for the week, catching many off guard as futures surged by more than $3 a barrel. That means come Monday morning, traders and asset managers will likely have to take out costly hedges against a further increase in prices and recalibrate forecasts for the year.

Volatility in March U.S. crude futures, which expire next Wednesday, surged to over 53%, rising more than 16 percentage points. The $95 calls were the most active option, trading more than 17,000 times.

Call skew just went parabolic, one dealer said, referring to the measure of relative value for bullish options, which hit the strongest level since September 2019.

There have been a number of strategy trades this week betting that WTI wouldn’t get above $95 before expiration. If the situation escalates further into next week, there could be further buying to cover the money-losing short positions.

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