US President Donald Trump said on Monday that the US is in “serious discussions” with what he called a “new and more reasonable regime” in Iran. He said the talks aim to end US military operations in Iran, and that progress has been made, with an agreement still possible.
Trump warned that if a deal is not reached soon, and if the Strait of Hormuz is not immediately reopened to commercial traffic, the US could launch large strikes on Iran’s key energy infrastructure. He said the US could target electric generating plants, oil wells, Kharg Island and desalination plants.
He also said these sites have so far been deliberately spared by US forces. In currency markets, the US Dollar Index (DXY) was around 100.30 on Monday at the time of writing, up 0.10% on the day.
With a new round of US-Iran negotiations scheduled for next month, we are looking back at the sharp rhetoric from 2025 as a critical playbook. The market is now pricing in significant volatility, as the outcome could either send crude oil prices soaring or cause a rapid decline. This binary risk is creating distinct opportunities for derivative traders who are prepared for a sharp move.
Traders anticipating an escalation or failed talks should consider buying near-term call options on Brent crude futures. Given that Brent crude has already risen 8% this month to $92 a barrel on renewed tensions, out-of-the-money calls offer a leveraged bet on a potential spike toward the $110-$120 range. We are already seeing call volume for May and June contracts up 25% week-over-week, indicating this view is gaining traction.
Conversely, the possibility of a diplomatic breakthrough makes holding downside protection essential. We recall that after a minor de-escalation in the Red Sea in early 2025, oil prices fell nearly 12% in two weeks. Purchasing put options on the United States Oil Fund (USO) can serve as an effective hedge against a similar price collapse if a deal is announced.
The elevated uncertainty itself is a tradable event, which is reflected in the CBOE Crude Oil Volatility Index (OVX) recently hitting a 14-month high of 48. This suggests that option premiums are expensive, but strategies like long strangles could prove profitable if oil makes a major price move in either direction. The current setup is about positioning for a large swing, not betting on a specific direction.
We must remember the physical reality behind these financial instruments, with the Strait of Hormuz being the key chokepoint. Latest shipping data confirms that nearly 22 million barrels per day, representing 21% of global consumption, are still transiting the strait. Any direct threat to this passage would trigger a price reaction far more severe than what we saw in 2025.
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