Senators tout Russia sanctions bill as 'sledgehammer' with 500% tariffs.
Are you getting tired of seeing tariff headlines in the press and not knowing what to do about them?
The fact that Russia is now being targeted makes me think of one key asset....Oil!
It just so happens that implied volatility in $USO has been getting crushed lately, which can be seen from our chart showing the last 3 months of spot and ATM volatility observations.
The green curve shows what the Aug 25 volatility surface looks like now (pretty much at the 3-month lows).
So what's the trade?
Just buying USO vol doesn't really stack up because the carry is positive. That means the implied vol is higher than the realised vol and so if you buy options then there is a high chance you will bleed decay if the status quo continues.
However, a nice way to buy VEGA (and benefit from a pop in implied vol) without bleeding carry is to own forward vol. This means trading calendar spreads and neutralizing the THETA bleed of the option that you buy.
The term structure in USO is still quite cheap and so that would be the way I would position for uncertainty in the Oil market going forward.
Sorry, trade specifics are reserved for our ALPHA POD members.
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