Bullish Case: The bullish scenario hinges on stable oil prices and increasing demand, coupled with higher implied volatility in call options. Recent trends indicate sustainability above support at $134, suggesting potential for upward movement toward $145 by mid-November, aided by seasonal demand peaks.

Bearish Case: The bearish outlook is supported by the flat term structure and declining historical returns, suggesting a higher likelihood of stagnation or a potential drop below $130. Increased put volume indicates market apprehension, along with geopolitical tensions that may suppress prices further.

Potential Outcomes:

1) 40% chance XOP rises to $145 due to favorable market conditions.

2) 35% chance stagnation around $134 as volatility normalizes.

3) 25% chance XOP declines below $130 driven by geopolitical tensions and weak demand.

Trading Oracle: Consider a bullish ratio call spread: buy 1 $140 call and sell 2 $145 calls, targeting increased volatility with a high probability of profit (65%). This strategy leverages current market sentiment while maintaining a high reward-to-risk profile. Focused on a near-term outlook, this approach capitalizes on volatility expansions expected in the upcoming weeks.

October 27, 2024