Fading The Oil Panic

Oil has gone parabolic.

As the first full week of Operation Epic Fury has given way to a second, the energy shock has worsened rather than eased. Reuters reported overnight that Brent surged roughly 25% to as high as $119.50 a barrel, while U.S. crude spiked into the mid-$110s, as the war with Iran widened, production was cut across parts of the region, and the Strait of Hormuz remained effectively shut. Reuters also reported that Bahrain’s state-owned energy company, BAPCO, declared force majeure after an attack on its refinery complex caused a fire and material damage.

Volatility Has Climbed As Well

That move in oil has been accompanied by the kind of volatility surge you’d expect in a market suddenly repricing inflation, recession risk, and a possible prolonged supply shock. Asian stocks were hit hard in Monday trading, with Japan and South Korea suffering especially steep losses as investors grappled with the implications of triple-digit oil and a renewed energy bottleneck.

Time To Cash In Our Volatility Hedge…

Fortunately, we came into this phase of the war with a hedge already in place. On February 18th—ten days before the war started—we placed a VIX call-spread hedge against exactly this sort of geopolitical shock.

🚨Hedging Iran War Risk🚨

Taking advantage of today's drop in volatility to hedge against an American (or American-Israeli) attack on Iran. https://t.co/vHhn1FPFP5

— Portfolio Armor (@PortfolioArmor) February 18, 2026

It has now done its job, and we’re planning to cash it in today.

The more interesting question now is what comes next.

… And Time To Fade Oil

Our view is that this may be the right time to start fading oil. There are two broad paths from here, and both point in the same direction. Either the Strait of Hormuz situation gets resolved over the next several weeks and some of this panic premium comes out of crude, or the world gets a prolonged energy shock severe enough to tip the global economy toward recession—which would eventually bring demand destruction with it and pressure oil prices lower anyway. Reuters noted just a few days ago that derivatives markets were already signaling that traders might view this shock as severe, but not necessarily permanent.

That doesn’t mean shorting oil naked into a war. It means structuring a trade carefully.

So today we’re placing an options trade designed to give us significant upside if oil reverts toward a more normal range by July, while strictly limiting our risk if the panic extends further first. And there’s one more reason to think the political incentives here may eventually favor lower energy prices: July 4th marks America’s 250th birthday, and President Trump is unlikely to want triple-digit oil prices hanging over that celebration.

If you'd like a heads up when we place that trade, you can subscribe to our trading Substack/occasional email list below. 

And if you want to hedge on the next bounce, you can use our website or iPhone app.