Some traders are betting this week that oil prices could hit $110-$130 in November as Middle East risks reached a boiling point amid escalating tensions between Israel and Iran.
Oil prices rallied on Tuesday and Wednesday, and were also rising on Thursday morning, following the news of Israel assassinating Hamas’s political leader Ismail Haniyeh in Iran and a senior Hezbollah official in Lebanon.
Brent Crude prices soared past the $80 a barrel mark this week as tensions in the Middle East flared up again, with Iran vowing to retaliate for the Israeli actions, especially the hit on the Hamas leader on Iranian territory.
As prices spiked and tensions escalated, more than 300,000 call options in Brent were traded on Wednesday alone, according to data compiled by Bloomberg. That was the highest volume of call option contracts traded in a single day since April this year.
The call options give traders the right—but not the obligation—to buy assets at a certain price, the so-called strike price, by a certain date.
In early April, traders flocked to the crude oil options market, trading record numbers of call options that Brent would hit $100 per barrel in the coming months, in the previous major escalation of tensions in the Middle East when drones from Iran attacked Israel.
This week, the call options trades were dominated by large call spreads, including spreads betting on $87 to $90 oil price for October, and $110 and $130 spreads for November, showed the data compiled by Bloomberg on Wednesday’s options market.
Early on Thursday, Brent Crude traded 0.8% higher on the day, at $81.40, following a jump on Wednesday amid fears of a possible direct Israel-Iran conflict.
“The market will likely need to price in a larger geopolitical risk premium until these tensions subside,” ING’s commodities strategists Warren Patterson and Ewa Manthey wrote in a Thursday note.