Today’s market action is opportunity cloaked in risk, volatility, and yes, geopolitical chaos. We’ve been watching energy surge, close to 4% in five days, as the hottest sector on the board, but what’s happening under the hood?
How do you ride the wave without getting wiped out? That’s what I’m here to dig into.
We started the day already buzzing with energy plays lighting up the options tape—Exxon, Chevron, XLE, XOP—all pushing with force. There’s a reason: energy doesn’t move in a vacuum. It’s directly tied to bond yields, the dollar, and macro risk, and that triumvirate is flashing signals loud and clear. We’re seeing backwardation in the oil curve steepen again, suggesting real or perceived supply pressures.
This is sentiment, positioning, and global tension coming to a head…
Now, the news cycle isn’t doing us any favors. Aircraft carriers in the Middle East, rumors of widening conflict, political posturing, and the always-unpredictable social media circus. It’s volatility not just in the charts but in the narrative and that translates into real hedging activity. Just look at the SKEW index climbing from 141 to 156 in a matter of days. That’s institutions bracing for a hit.
That’s right: Rising SKEW means hedging, and it means institutions are nervous.
We’re not just talking about hedging downside in equity indexes—this is real preparation for asymmetric outcomes. Puts are being bought. Calls are being sold. The VIX may be behaving moderately, but under the surface, risk appetite is shifting, and fast.
So what do we do about it?
We focus on structure. Not hype. Not headlines. Structure. That’s where vertical spreads shine, particularly in environments like this. I don’t want to risk a dollar to make a dime. I want defined risk, high potential, and room to be wrong short-term. Whether it’s an Exxon $117 to $120 call spread or a similar setup in XLE or XOP, the idea is consistent—target direction, define risk, and respect the clock. The tighter the SKEW, the better the setup. If you’re trading verticals, pay attention to implied volatility ranks and SKEW differences between legs—that’s the edge.
Now, I’m not saying back up the truck and buy every bullish spread you can find. I’m saying there’s opportunity—but it’s razor-edged. If we get a geopolitical flashpoint, these trades can work beautifully. If things stabilize quickly? That spread decays fast. That’s why we manage them. We don’t hold and hope.
Bottom line: this isn’t a market for passengers. It's for traders who plan, structure, and respond—not react. You’ve got the tools, and now you’ve got the context. Use it.
Stay sharp out there.
By Brandon Chapman, CMT