Bearish bets on U.S. crude surge as traders brace for Biden win
Oil rallied on Wednesday as fears of a Democratic sweep in the Senate were quelled and investors viewed Biden’s plan to pivot from fossil fuels to green energy as having less chance of success
By Devika Krishna Kumar
NEW YORK: Oil traders added to bearish bets on U.S. crude on Wednesday on expectations that Joe Biden would win the tightly contested U.S. presidential election and pursue his agenda to promote clean energy and reduce emissions to fight global warming.
Options are a popular way to wager on big events in oil markets, and bearish put options give the holder the right but not the obligation to sell oil at a pre-determined price. CME Group even uses WTI crude option prices to calculate probabilities of certain outcomes of the next OPEC meeting.
The put skew – a measure of demand for put options – surged compared to the bullish call options in recent days, traders and brokers said. Buying in outright puts as well as put options on calendar spreads jumped, dealers said.
Open interest in $33 put options for December WTI surged to a record above 20,000 lots late last week, according to Refinitiv Eikon data. Demand for puts is holding strong even as the election remains too close to call, traders and brokers said.
Nine out of the 15 most actively traded WTI options contracts on Wednesday were bearish put options, data showed. December U.S. crude futures ended Wednesday at $39.15 a barrel.
“It’s simple. Biden is bad for the energy companies and Trump remains positive for them,” one broker said.
Oil rallied on Wednesday as fears of a Democratic sweep in the Senate were quelled and investors viewed Biden’s plan to pivot from fossil fuels to green energy as having less chance of success in a split Congress.
Voting concluded as scheduled on Tuesday night, but many states routinely take days to finish counting ballots.
To be sure, sources said negative sentiment was also being compounded by expectations of renewed lockdowns due to rising coronavirus cases around the world.