Hey trader,
The Persian Gulf conflict has kept crude elevated for weeks…
…but tonight's presidential address could shift the entire supply narrative in a single session.
And I see three possible outcomes we can use for setups.
Traders are already positioning themselves ahead of time.
An institution just bought a $10-wide put spread on USO, targeting a full retest of the March 25 lows.
The Block Hunter Console flagged 6,395 contracts in a single print at the ask.
The skew on USO is working in the put buyer's favor right now, which makes the setup cheaper than it should be.
And I might have an idea how to structure a position that costs less than 50 cents, with some serious profit potential.
Three Scenarios for Tonight
Trump's address tonight carries three possible outcomes for oil.
The first is the most bullish for equities and the most bearish for crude. A full end to the conflict with troops coming home would remove the supply premium that has kept oil elevated since mid-March.
The second ends the initial conflict but keeps troops in the Persian Gulf to maintain stability. The goal would be reopening the Strait of Hormuz to normal shipping traffic. Oil still declines in this scenario because supply constraints begin to ease.
The third is a ground offensive. That would extend the conflict, keep oil prices elevated, and pressure equities further.
Two of the three scenarios point lower for crude.
What the Print Tells You
The institution bought $118 puts and sold $108 puts on USO. Approximately 6,800 contracts traded across the spread, with 6,395 confirmed in a single print.
The $108 target lines up with USO's low from March 25. That level represents a full retracement of the supply-driven rally that followed the initial Persian Gulf escalation.
A $10-wide spread at those strikes with that kind of size confirms this as a directional trade targeting a specific level on a specific catalyst.
XLE has been the worst-performing sector in the S&P 500 this week. Energy stocks are already unwinding before the address. The institution behind this print is positioned for that unwind to accelerate.
Why Skew Gives You an Edge
Implied volatility on USO is elevated across the board, but the skew is tilted in the put buyer's favor.
The $121 strike carries an implied volatility of 91%. The strike two levels below carries 95%. The sold strike has higher implied volatility than the bought strike.
That pricing dynamic means you are selling richer premium relative to what you are buying. The skew discount reduces the net cost of the spread.
USO skew does not always behave this way. The current pricing is a function of the elevated vol environment and the directional positioning that has built up over the past two weeks.
How to Structure the Trade
The institutional spread targets $108, but a narrower vertical at higher strikes captures the same directional thesis with less capital at risk.
- Buy: USO May 15 $121 put
- Sell: USO May 15 $119 put
- Cost: Approximately $0.45
- Target: $0.77 (70% return)
- Max risk: $0.45 (the debit paid at entry)
- Skew: 91% IV on the bought strike vs. 95% on the sold strike
- Catalyst: Presidential address tonight, potential easing of Persian Gulf supply constraints, XLE sector unwind
USO does not need to reach $108 for this spread to work. A move toward $119 puts the lower strike at the money and accelerates the value of the spread as expiration approaches.
The primary risk is the third scenario. A ground offensive that extends the conflict would keep supply disruptions in place, support crude prices, and work against the trade.
What the Console Is Tracking Now
The Block Hunter Console flagged the 6,800-contract spread and confirmed through fill location that the $118 puts were bought and the $108 puts were sold.
Two of the three outcomes from tonight's address favor lower oil. The institution behind this print committed capital to that thesis with a defined target and a defined catalyst.
The spread gives you the structure to align with that positioning for 45 cents of risk.
See exactly how Block Hunter catches institutional positioning before the crowd catches on.
Brandon Chapman, CMT
Creator of Ghost Prints