Wow!
20 ships per day are transiting the Strait of Hormuz for the past week – down from 140 per day pre-war but the ACTUAL FACTS are not important, not when Treasury Secretary, Scott Bessent (not the guy you’d usually associate with war info) tells us that there is an agreement to IMMEDIATLY open the Strait TODAY!
He said that yesterday and today it is already the end of day in Iran and… nothing. Trump just says “maybe tomorrow” and, just this morning, my “smart TV” decided to show me Seth Meyers from April 20th but maybe it is smart because it’s a timely reminder that, less then two months into the war – we were in the same position that we are now – with the same bullshit from the same people:
That was FOUR MONTHS AGO!!! You would think we would learn but we never do, do we? Oil is all the way becak to $76 and sure, it was $56 before the war started and $20 is only +35% and Gasoline was $1.70 to start the year and now $2.85, which is BETTER than $3.75 in May but still $1.15 (67%) higher – wildly outpacing oil
This is fantastic for refiners like Valero (VLO), who are up almost 100% this year – making so much money that EVEN Donald Trump called them greedy! There’s a thing called a “crack spread” which is the difference between the price of a barrel of oil $75 at the moment and the price of 42 gallons (a barrel) of what you make out of it. In this case, let’s say it’s all gasoline (other things are even higher) so 42 x $2.85 is $119.70 so that’s a $44.70 PROFIT for the refiner vs last year when it was $65/barrel and $2.09 ($87.78), which was a $22.78 profit.
So profits for refiners have DOUBLED per barrel and VLO just announced earnings of $12.54 per share – 24% MORE than analysts expected and that was up from $2.28 in last year’s Q2 report, when the stock was at $140. If VLO makes $12.50 x 4, that’s $50 and their p/e is 6 but if they go back to making $2.28 x 4, their p/e is over 30. If the war is truly over – 30 is more likely than $6 and $300 is ridiculous – so shorting VLO at $308.96 seems like the logical play.
Yet there are people who think VLO will go higher and we can take advantage of them with the following spread that can pay for your PSW Membership for the next year:
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- Buy 20 VLO Dec 2028 $250 calls for $109 ($218,000)
- Sell 20 VLO Dec 2028 $300 calls for $86 ($172,000)
- Sell 7 VLO Dec 2026 $310 calls for $34 ($23,800)
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The net cash outlay is $22,200 and each quarter you sell more short-term calls so 8 more quarters to sell is $177,600 for a potential profit of $155,400 (700%) and it’s a $100,000 spread so you have net $77,800 (350%) upside potential in the spread covering any gains in the short-term short calls (we can also set stops at $40 and $45, which would leave us with the bullish spread).
To the downside, the Deltas on the $250/300 spread are 0.74/0.65 so net 0.11 means very little movement expected on the longs and we only need one successful sale to cover the ENTIRE cost of the spread – meaning there’s a VERY HIGH probability of success.
This is what we do in our Live Member Chat Room at PhilStockWorld – we read the news, figure out what would be a good trade – and then use options to set up a fairly bullet-proof set-up that makes money in an up, down or flat market. We don’t even have to be right – just somewhere in the ballpark to do very, very well!
That’s why it’s called Phil’s Stock WORLD – my aim 20 years ago was to get Investors and fellow Hedge Fund Managers (who I have long taught to use options ) to understand how Global events affect your daily trading. We are FUNDAMENTAL VALUE investors who monitor global macro trends as long-term catalysts to underpin our value stock selections.
Anyway, back to War betting: I’m thinking bullish bets on Oil, Natural Gas and Gasoline are in order since yesterday’s sell-off based on Scott Bessent and Donald Trump’s word seems way overdone! Here’s the latest news from Al Jazeera (as of 9am), which you won’t hear quoted often by Western Media but happens to be a great source of reliable info (and you see, just by saying that you probably think less of me!):
Does that sound like a 20% drop in Petroleum this week is justified? SHIPS MOVING – DATA!!! THAT is what would justify $75 oil – not more BS from the Administration!
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- So we like Oil (/CL Futures) long above $75 with tight stops below.
- We like Gasoline (/RB Futures) long above $2.80 with tight stops below.
- We like Natural Gas (/NG Futures) long above $2.65 with tight stops below.
A simple way to play oil long is the USO (Oil ETF) August 21st $110 ($8.35)/115 ($5.60) bull call spread at net $2.75 which pays $5 for a $2.25 (81%) profit in 16 days if Oil manages to hold $75. It’s a bet that Trump and his team are full of crap and are lying to the American people to manipulate the oil markets and boost his polls – so, if you make money on this trade – be careful who you brag about it to!
As we’re buying the $110 calls for net $2.75, USO can fall to $112.75 before we actually lose money but let’s say we buy 20 contracts for net $5,500 the net Delta is 0.14 so we’ll lose about 0.70 if Oil falls $5 (not a perfect correlation) and that’s $1,400 on 20 contracts so let’s say we put a $4,000 stop on the spread to limit our loss to $1,500 vs the upside we believe in paying $2,250 – that’s a good risk/reward set-up!
The Oman deal, even if completed, covers only ROUTING – not reopening. Iran’s FM Baghaei stated explicitly: “An understanding between Iran and Oman on a new route has nothing to do with whether the Strait of Hormuz is reopened or remains closed.”
That’s our trading premise – facts, not rumors, not speculation. If barrels are not moving through the Strait – why are the prices dropping?
The US Treasury Secretary is describing as an imminent Strait reopening something that Iran is simultaneously describing as a route discussion that doesn’t affect the Strait’s status. This is not ambiguity. These are two completely different conversations being presented to two completely different audiences as the same event.
THAT is the information disparity we are taking advantage of. It’s not political – it’s just logical…
Per Reuters’ detailed breakdown and Pittsburgh Post-Gazette/AP: Iran wants full control of inbound shipping through a northern route under Iranian territorial waters. Outbound vessels would use an Oman-side route but Iran would require notification and retain the right to intervene.
Iran’s Parliament Security Committee explicitly said it opposes the southern Omani corridor because it could be used to transport fuel for US and Israeli military aircraft. So Iran wants inbound control AND veto rights over outbound. Oman proposed equal division. Iran rejected it July 27th and they have been arguing about that gap ever since…
That’s called NUANCE – you don’t get nuance from the mainstream media in the US – just “war on” and “war off” as if it’s a binary event. That’s what the betting markets encourage and the betting markets now sponsor the news and sports in America – binary outcomes to everything.
We will know talks are getting serious if Iran allows European vessels to begin clearing mine in the Strait – that would be the first step to re-opening (a two-week process, at least). What we are HOPING for this week is a PROPOSAL for routing maps that Iran agrees to but the CONDITIONS attached to the maps will be the next negotiating point.
The April 20th clip above was the week of TACO #4 – IDENTICAL language, IDENTICAL dynamics, IDENTICAL market reaction, IDENTICAL Iranian denial. The only difference between April 20th and August 5th is Brent went from $102 to $76 and Valero went from $180 to $308. Neither of those moves is justified by the underlying reality, which hasn’t structurally changed in 159 days.
