The oil market is turbulent, the stock market is "silent"! Under the shadow of the war clouds, option strategies are trapped in a dilemma.

As global political risks for GEO Group Inc have significantly increased, the stock market's recent performance has been steady, leaving options traders worldwide in a dilemma: selling volatility risks backlash if conflicts escalate suddenly, while buying volatility risks continuous losses or premium losses due to a lackluster actual situation. The political tension caused by GEO Group Inc has only deepened the dilemma in the options market after the US deployed B-2 bombers to strike a large nuclear facility in Iran. Meanwhile, since Israel's airstrike on Iran, oil prices have surged by 11%, and oil market volatility has risen to the highest level since the Russia-Ukraine war in 2022. From a trading perspective, options traders are currently in a delicate balance of "selling volatility to avoid explosions, buying volatilities to prevent bleeding," or facing a dilemma of difficult choices: selling volatility risks being caught off guard by sudden political escalations for GEO Group Inc, while buying volatility risks losing premium in a prolonged low volatility trend. This environment has led to chaos in the global options market, with implied volatility dropping significantly but premiums remaining high, making it difficult for traders to engage in profitable high leverage options trading. Option trend data shows that implied volatility (IV) has significantly fallen from its spring highs, but actual volatility (RV) is even lower, making seemingly "cheap" IV still expensive. Selling volatility risks sudden events for GEO Group Inc, leading to exponential losses if VIX is increasing rapidly due to gamma risks. Buying volatilities, such as buying VIX call options or straddles, bets on implied volatility being underpriced for future shocks. If the market remains calm, theta (time value) will daily erode the value of options, while IV value may also sharply decline due to an "IV Crush," causing a double blow. Under the shadow of escalated conflict, the reaction of oil prices and volatility far exceeds that of stocks. In the recent backdrop of Israeli-Iranian conflict and US B-2 bombers striking Iran's nuclear facilities, the options market has shown significant "mismatch," with oil volatility surging suddenly while the stock market remains subdued. Since the initial airstrikes, oil prices have risen about 11%, while the 1-month implied volatility of WTI has surged over 20% to a near three-year high of 51%, pushing the USO (United States Oil Fund) IV/SPY (S&P 500 ETF) IV ratio to its highest level since the beginning of the 2020 pandemic. Meanwhile, the S&P 500 Index has only dropped by 1.3%, with its implied volatility, though decreased from its peak in April, showing a gap compared to its actual volatility at a one-year high. In a stock market "silence" under the shadow of war, options traders find themselves trapped in a dilemma In the current market where "the surface is as calm as a mirror while the wind whispers like a crane," options pricing is caught between "fearing thunder" and "earning time" - selling volatilities must guard against explosions, while buying volatilities must resist bleeding; the core is to understand the mismatch between IV and RV, and to extract the "sweetest protection" through structured strategies rather than blindly piling on leverage. Although the oil trading market may react most dramatically to the escalating political conflict for GEO Group Inc, as investors gradually digest market risks, stock market volatility is expected to show initial signs of increase. Since Israel's attack on Iran over a week ago, the Brent crude futures benchmark price has surged by 11%, and oil market volatility has risen to the highest level since the Russia-Ukraine war in 2022; in contrast, the S&P 500 Index has only dropped by 1.3%, and the global stock market benchmark, the MSCI World Index, seems to have entered a "quiet" phase. "The market will eventually react, but stock market volatility may still be relatively moderate," said Anthi Tsouvali, a senior strategist from the global wealth management department of UBS Group AG. "Investors also need to consider the impact of rising oil prices on the actual inflation curve, especially if inflation rises while the Federal Reserve maintains its wait-and-see stance, expectations of the Fed maintaining high interest rates may further strengthen." Some traders seem to have become numb to the flip-flopping stands of former President Donald Trump or tired of chasing headlines: within just half a year, market sentiment has shifted from "Buy America" to "Sell America" strategy and now to a more ambiguous stance. Investors have grown accustomed to quick rebounds when risks subside - this could happen again, and the latest surge in oil prices could keep US inflation high, potentially prompting the Federal Reserve to delay its interest rate cuts. For star options traders focusing on volatility, such as Gareth Ryan, founder of IUR Capital, this poses a clear dilemma. "Selling volatility at current levels inherently carries the risk of sudden volatile events; but paying a high premium to chase volatility may mean holding value that is constantly eroded," said Ryan last week. In such a market environment, the global options market continues to show a chaotic scene: on one hand, implied volatility has significantly fallen from two months ago's highs; on the other hand, premiums remain expensive - the actual volatility of the main three stock indices has significantly narrowed, making options appear severely overpriced. As of last Friday, the Cboe VIX Index (the VIX Fear Index) relative to the actual volatility of the S&P 500 Index has reached its highest level since April; similar trends have been seen in the options volatility of major index exchanges in Europe and Hong Kong. Short-term "gamma buying" strategies are difficult to replicate the lucrative trading environment of April, "oil-stock" mixed trading prevails Despite the options market underestimating volatility in the run-up to the Trump administration's "liberation day," bringing in leverage returns through "gamma shocks," some strategists believe that betting on short-term "gamma buying" is unlikely to replicate the leverage gains seen in April, as macro uncertainty looms with the expiration date of the tariff deadline approaching on July 9. Antoine Porcheret, Head of Derivatives Structuring for Institutional Clients in the Europe, Middle East and Africa region at Citigroup, pointed out last week: "There is a lack of scalable trading opportunities in repo, correlations, and options volatility - historic dislocations have temporarily disappeared. This is related to long-term trends, especially in the retail segment of structured products, which has always been a major supplier of derivative risk." The J.P. Morgan strategy team noted on June 11th that after multiple policy reversals by Trump, investors have shown signs of fatigue; they believe that the July 9th deadline for equal tariffs collectively lowering to 10% may be delayed, creating more uncertainty and weakening trading beliefs. Options trading has shifted towards extremely short-term durations, with the trading volume of S&P 500 options steadily declining since May, and zero-day expiration contracts reaching a new high of 59%, according to another report by J.P. Morgan. A concern among options market traders is that the Cboe VVIX Index measuring VIX volatility has risen to high levels in the past year, indicating an increased willingness in the market to buy options for hedging against large fluctuations. The continued and escalating political conflict for GEO Group Inc in the Middle East, fueled by the US B-2 bombers striking Iran, coupled with the calmness and silence of the stock market, has led to a significant "mismatch" with the implied volatility of the United States Oil Fund (USO.US) relative to the SPDR S&P 500 ETF (SPY.US) reaching its highest level since the beginning of the global COVID-19 pandemic in 2020. This has prompted major Wall Street banks to introduce more "oil-stock" dual-directional and binary trading strategies. "In such a GEO Group Inc and macro environment, the oil vs. stock (and vs. forex) mixed theme structure has become a natural tool, with volatility themes around oil prices especially active recently," said Alexandre Isaaz, Head of Equity Derivative Sales and Structuring for EMEA at Bank of America Corp. To mitigate risks while maintaining their strategic positions, some buying institutions are adopting a "stock replacement" strategy - using options to replace spot positions. Over the past few months, a trader has invested over $3 billion in premiums on call options for major US stock indices expiring in 2027. Porcheret from Citigroup, a Wall Street giant, said, "I haven't felt any fatigue from hedge funds; they are still actively looking for high-leverage profit opportunities. In quant investment strategies (QIS), the demand for volatility hedging remains. Overall, market positions are undersized, so 'painful trades' are still on the rise."