Mediation efforts continued as the war in Iran entered its third month, while US President Donald Trump indicated that Tehran’s latest peace proposal might not meet his demands, according to Bloomberg on Sunday.
Iran proposed a one-month deadline for talks on a deal to reopen the Strait of Hormuz and end the US naval blockade, as well as the conflict in Iran and Lebanon, Axios reported, citing two sources familiar with the matter.
Oil Market Reaction
If such an agreement is reached, the plan would start a further month of discussions aimed at securing a deal on Iran’s nuclear programme, the sources said.
In market trading at the time of writing, West Texas Intermediate (WTI) was down 1.05% on the day at $98.18.
The recent dip in West Texas Intermediate to $98.18 reflects market optimism that these peace talks might de-escalate the conflict. We must remember this price is still highly elevated due to the ongoing US naval blockade of the Strait of Hormuz. That waterway is critical, as it consistently handles over 20% of the world’s daily seaborne oil supply, a statistic confirmed by the U.S. Energy Information Administration in recent years.
For those who believe a deal is likely within the one-month deadline, buying WTI put options could be a prudent strategy. This allows us to position for a sharp price drop if the strait reopens, but with a defined risk compared to shorting futures. We see that implied volatility is extremely high, making options costly, but that volatility will collapse and reward put holders if a peace pact is signed.
Hedging Escalation Risk
However, we remain cautious, as the president’s remarks suggest a high probability that the talks will fail. We only have to look back to early 2022, when the conflict in Ukraine caused WTI prices to surge well over $120 a barrel in a matter of weeks. A breakdown in these negotiations could easily trigger a similar spike, making out-of-the-money call options an attractive way to hedge against an escalation.
This binary situation, with a major potential move in either direction, means strategies that profit from volatility itself should be considered. A long strangle, which involves buying both an out-of-the-money call and an out-of-the-money put, positions a trader to benefit from a significant price move regardless of direction. This is a direct bet that the current stalemate, and the sub-$100 price, will not last.
