Spread of 'TACO Trading' in Oil Market Due to Trump Policy Changes

Donald Trump's change in policy towards Iran has led to the spread of 'TACO (Trump Always Chickens Out)' trading in the international oil market. As tensions in the Middle East escalate and oil prices surge, investors are increasing options trading in anticipation of the possibility that President Trump may withdraw his hardline stance. According to Bloomberg, traders have purchased about 400 million barrels worth of Brent crude put spread options since mid-last week. On the 16th alone, approximately 70 million barrels of September Brent crude put spreads at $75 and $74 were traded on the ICE Futures Exchange. A put spread is a strategy where a trader buys a put option at a specific strike price and sells another put option at a lower price, allowing them to hedge against the risk of falling oil prices. President Trump announced a 20% toll on cargo ships passing through the Strait of Hormuz but withdrew it just a day later. Recently, the oil market has been rapidly changing as investors liquidate short positions following concerns over oversupply and the resumption of airstrikes against Iran. The implied volatility and call option premiums for Brent and WTI have risen to their highest levels since April. Similar trading occurred in May, and recent options trading appears to be aimed not only at oil price forecasts but also at hedging digital option positions.

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