Sino-Iran confrontation suddenly sees large number of put options at "critical point": 134 million barrels of crude oil bet on oil price collapse, market doubts resurfaced.

On the morning of May 19, an unprecedented large-scale put option trade appeared in the Brent crude oil market, triggering tension in the already jittery market. Market data compiled showed a large-scale trade of 134,000 contracts of July Brent crude put options with a strike price of $91/$90 executed in one single transaction, corresponding to a massive 1.34 billion barrels of crude oil. If the July futures contract falls by about 19% from current levels before expiry on May 26, the buyer of these options stands to profit around $129 million. This was not the only unusual activity on that day. Subsequently, the ICE platform saw the trading of 30 million barrels of July contracts at a price of $0.11 for 92/90 put options, while the CME group saw 26 million barrels of similar contracts at the same strike price. In fact, at least 35 million barrels of crude oil were involved in put options trades related to the price differential on Monday alone. The timing of this trade is sensitive, as the expiry date of the options is just one week away. Market analysts pointed out that narrow range call or put option spreads are usually used by institutions as hedging instruments for over-the-counter binary options trading. Another possible use could be to hedge event contracts on prediction market platforms like Kalshi or Polymarket. In other words, this massive trade is likely not a naked directional speculation but a hedging strategy for some kind of "betting" event. The appearance of these put options at this moment is noteworthy. The US-Iran conflict has been ongoing for 12 weeks, with the market currently at a highly sensitive "tipping point." On May 18, tensions between the US and Iran escalated over the Iran nuclear issue and regional conflict. President Trump issued a final ultimatum to Iran through social media, threatening severe consequences if Iran does not act quickly, and he planned to discuss military options with the White House Situation Room and national security team. Iran responded with six tough conditions, while also announcing a new mechanism for managing navigation in the Strait of Hormuz. The Strait of Hormuz is a critical chokepoint for global oil transportation, with about 20% of global oil supply depending on this waterway. Even as the US and Iran continue to clash, traders always consider the possibility of a sudden de-escalation, including a potential agreement for Iran to reopen the strait. The skew of call options - the premium paid by traders to bet on further oil price increases - has narrowed to the lowest level since the outbreak of the conflict. This suggests that confidence in further oil price increases is waning. Meanwhile, on May 19, international oil prices fell. By the end of trading, Brent crude oil futures were down 0.82% at $111.28 per barrel, while WTI was down 0.82% at $107.77 per barrel. Just the previous trading day, boosted by President Trump's ultimatum to Iran on May 18, Brent crude oil had surged by 2.6% to reach $112.10 per barrel. Less than 24 hours later, the market experienced a reversal from gains to losses... This massive put options trade has a concerning backdrop - the US Department of Justice is investigating multiple cases of highly precise crude oil trades. Reports indicate that the US Department of Justice, in conjunction with the Commodity Futures Trading Commission (CFTC), is investigating at least four suspicious trades involving a total amount exceeding $2.6 billion that were made just before major statements by President Trump or high-ranking Iranian officials. A key signal is that, even though the investigation is ongoing and no conclusions have been reached, market confidence has been eroded. Reports from market investigators show that confidence in the fairness of oil trading is declining. When investors begin to suspect that every large trade may involve some form of insider trading, risk management logic and position allocation will be forced to react - further exacerbating the already volatile geopolitical environment and increasing risk aversion. From a quantitative perspective, this put options trade is not an isolated incident, but coincides with changes in the entire options market structure. The latest data from the options analysis platform OptionStrat shows that since early May, the volatility risk premium (VRP) for Brent and WTI crude oil has significantly increased. Currently, the VRP for Brent crude oil has reached 2.6 times the long-term median. The volatility risk premium (VRP - the difference between Implied Volatility and Realized Volatility) is a key indicator of how much tail risk pricing is reflected in the market. The sharp rise in VRP indicates that the options market has "amped up" pricing for black swan events - whether the ultimate direction is escalation of the war or a ceasefire agreement, the current options market believes that oil prices will face a violent and unpredictable one-way movement. The massive put options trade on Monday is a concentrated release within this risk premium environment, signaling that market participants are collectively "buying tickets for a downtrend" in advance. At the time of writing, both the US Department of Justice and the CFTC have not commented on the investigation. It is important to note that the trading data disclosed by LSEG only tracks the time and scale of the trades, does not disclose the identities of the traders involved, and cannot prove the existence of insider trading activities.