Low Vol, Big Demand In This Commodity

Hey Traders,

Tomorrow is the big day here at Option Pit … Commodities Expert Bill Griffo has some time-sensitive information about how a new Digital Currency Arms Race is threatening to obliterate the dollar …

He has the scoop on an international scheme that could put your hard-earned wealth in imminent danger …

And why precious metals could be getting ready to rocket SKY-HIGH later this month!

He’ll be revealing his top three trades to play it all … but you have to attend to get them!

Register here, the event is LIVE on Thursday at 12pm EST.

And speaking of commodities …

You’ve been hearing me talk about finding ‘pockets of value’ among re-opening stocks … specifically, travel stocks.

Well, as demand for travel rises, what else do you think is also going to see demand go up?

In fact, we’re already seeing it …

As people begin to travel again – whether it be on vacation, or just back to the usual daily commute – we’re seeing a big rebound in oil.

In fact, we’ve already seen a complete oil recovery, with WTI Crude tapping $70 per barrel for the first time in three years!

Chart courtesy StockCharts

Brent crude also reached its highest point since May 2019, indicating the 2020 pandemic stall-out is already in its rear-view …

Oil’s upward trajectory isn’t expected to stop any time soon, with some analysts saying the $100 per barrel mark may be well within reach before we know it.

But … as oil has been rising higher, oil volatility is surprisingly not following suit, having recently settled at low levels, and seemingly determined to stay there.

Take the CBOE Crude Oil Volatility Index, which tracks the implied volatility (IV) of at-the-money strikes for the U.S. Oil Fund ETF (Ticker: USO):

Chart courtesy StockCharts

Similarly, if you take a look at the CBOE Energy Sector ETF Volatility Index (Ticker: VXXLE) you’ll see a similar consolidation at low levels.

So even as black gold works its way higher, oil volatility expectations remain quite muted – on the lower end of what we’ve seen over the last 12 months, if not the lowest, when you’re looking at specific equities, like Exxon Mobil (Ticker: XOM), Marathon Petroleum (Ticker: MPC), Energy Transfer (Ticker: ET), and others, all of whom are sitting in the first percentile of their annual range for ATM 30-day IV.

So we’ve got rising oil prices, and low volatility – what does this mean for us options traders?

That’s right – options are “on sale!” With low volatility priced in, options prices are relatively cheap right now.

And since I expect oil to continue to increase, this means right now is a great time to make a bullish bet.

In fact, yesterday in my Sharp BETS program, I made a trade on oil ticker Energy Transfer (Ticker: ET).

Without giving too much away, I liked the extremely low IV on this name, and the resulting options prices. 

By purchasing calls with a gamma level I liked, I’m hopefully able to set myself up to profit with a relatively small move in the underlying.

There’s plenty of opportunities for oil options players right now. With IV of the whole sector low, many options on oil names are similarly ripe for the picking. Just be sure you are managing your risk to reward ratio, and giving your options enough time to play out.

Your Only Option,

Mark Sebastian

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