An option trade to play the volatility in oil prices as Middle East tensions persist
Energy equities have pulled back, but the macro setup still argues for a durable floor under oil prices. The Middle East conflict remains unresolved, the Strait of Hormuz disruption continues to limit confidence in supply normalization, and the Energy Information Administration’s latest outlook assumes the strait remains effectively closed, with shipments only beginning to resume in the third quarter and not returning to preconflict traffic until 2027. My thesis simply assumes that geopolitical risk, tight inventories, and lingering supply disruption keep crude supported enough to prevent a deeper breakdown in energy equities. Against that backdrop, selling downside premium in the State Street Energy Select Sector SPDR ETF (XLE) offers a way to monetize elevated energy volatility while potentially acquiring the sector at a discount near a major support level. Trade, timing and outlook XLE has pulled back toward the mid-$50s after failing to sustain momentum above $60, but the ETF remains near a key support zone. Support zone: The $54–$55 area aligns closely with the April lows and represents an attractive entry level for investors willing to own energy exposure. Oil floor thesis: With Hormuz still disrupted and Middle East de-escalation far from certain, oil likely has a stronger floor than the equity market is pricing. Income setup: Rather than chasing upside in a volatile tape, selling a put allows investors to collect premium while defining a preferred entry price. Macro thesis Middle East risk keeps a floor under oil A quick resolution to the current conflict looks unlikely. Even if headline risk cools temporarily, the physical disruption to shipping and the uncertainty around Hormuz are likely to keep a geopolitical risk premium embedded in crude prices. Energy equities offer inflation protection If oil remains elevated, energy companies benefit from stronger cash flow and relative defensiveness versus sectors more exposed to margin pressure from fuel costs. Neutral to bullish income The goal is to use elevated volatility to get paid while positioning to own XLE at a level that already reflects a meaningful pullback. Options trade To express a bullish income view, consider: Selling the July 17, 2026, $56 put @ $1.46 Credit Maximum reward: $146 per contract if XLE is above $56 at expiration Potential assignment price: $54.54, roughly in line with the April low support area Static return: 2.68% over 37 days Annualized return: 29.8% This structure generates income while giving investors the opportunity to own XLE at a discounted effective price if the ETF closes below $56 at expiration. View this Trade on OptionsPlay for Updated Pricing Summary XLE offers a clean way to express the view that oil may remain supported even if it does not surge. With the Middle East conflict unresolved, Hormuz disruption still weighing on supply visibility, and inventories tightening, the energy sector should retain a geopolitical floor. Selling the July $56 put allows you to collect attractive premium while potentially acquiring XLE near the April lows, making it a disciplined income strategy during a volatile energy environment. DISCLOSURES: Zhang has a position in XLE. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
