Oil is back in the news.
The war between Iran and the U.S. is boiling over once again, after previously reaching a deal.
War moves stocks. And in the case of the war with Iran, oil is the most vulnerable/volatile sector.
There’s 1 oil stock at the top of my list…
One of the key dangers in this war… it risks developing into a larger conflict that ropes in neighboring countries.
These were the headlines from July 23:
The Strait of Hormuz is under contention, and because of its importance for global oil trade, almost everyone’s affected by this violence.
In that headline alone…
- The United States
- Iran
- Yemen
- Saudi Arabia
Higher oil prices are putting pressure on the market, let alone the implications of an escalating war. As a result, investors are nervous.
We don’t have to share their fear.
The volatility from the oil sector is a perfect place to find trade setups that help us defend against a weak overall market.
How We Got Here
Let’s rewind to February 28.
That’s the day the U.S. and Israel opened this war with airstrikes across Iran.
Reports out of the region said the campaign reached all the way to the top, with the death of Supreme Leader Ali Khamenei.
Iran’s response came within hours. It shut the Strait of Hormuz to all foreign shipping.
Roughly a fifth of the world’s oil crosses that narrow stretch of water. Close it, and the entire market feels the squeeze. Brent prices ripped past $115 a barrel by late March.
Then came a break in the fighting.
In June, the two sides signed a preliminary deal: a 60-day ceasefire built to wind the whole thing down.
Oil gave back every dollar of its war premium and slid under $72 per barrel, back to where it traded before the first overseas strike.
The peace lasted about a week.
On June 25, an Iranian drone slammed into a cargo ship crossing the Strait of Hormuz. There weren’t any casualties, but it relit the fuse.
There were attacks, counterattacks, a violent back and forth. By July 7, three more ships had been hit, and President Trump declared the truce dead.
The War Is Back On
Here’s where it stands today.
The U.S. military just wrapped its 12th straight night of strikes on Iranian targets.
Iran declared the strait closed again, and traffic has fallen off a cliff: roughly 15 ships a day, down from about 130 before the war.
Now the fight is spreading.
On July 23, Iran’s Houthi allies in Yemen said they struck two Saudi oil tankers in the Red Sea, enforcing a blockade they announced earlier this week.
That’s the second escape route for Middle East crude, and now it’s under fire too.
Trump warned he’ll hold Tehran directly responsible and threatened “major military punishment.” Secretary of State Marco Rubio said Iran isn’t ready to make a deal.
The market’s already doing the math.
- Brent crude punched through $100 a barrel for the first time since May.
- WTI pushed up near $92.
- Gas at the pump hit $4.09 a gallon, up 37%.
A few strategists are now floating $120 per barrel, even the 2008 record near $146, if this turns into a full regional war.
There’s fear everywhere. And that’s exactly when I go hunting…
Why I Fade Panic
Everyone else sees a war and buys oil stocks with both hands.
I do the opposite.
When a sector goes vertical on fear, it stretches like a rubber band pulled to its limit. And rubber bands snap back.
Oil names have run hard and fast on this war premium, and the services and producers are stretched short-term.
I’ve built a career on this exact move. Fade the panic when the crowd piles in late. And right now the crowd is piling in.
My #1 oil stock: APA Corporation (NASDAQ: APA).
If it’s not on your radar, APA is a Houston-based independent energy company. It produces crude oil, natural gas, and natural gas liquids, with operations across the United States, Egypt, and the North Sea, plus exploration off Suriname and interests in Uruguay.
This is a real oil producer, sitting right in the crosshairs of the war volatility.
APA is up 42% over the last six months. It ran to roughly $45 in March, rolled over to the low $30s by late June, and now it’s rallying on war fears.
The rubber band is stretched.
The Trade
I stepped in on July 21 with a short-dated put: the APA July 31 $35 puts.
Then on July 23, as the Houthi headlines sent oil into another panic, I doubled down.
This is a panic move in oil. We always fade the panic.
I’m not betting against oil forever. I’m betting this specific spike has run too far, too fast, and it’s bound to hit solid resistance. I’m looking for a snap back over the next few sessions.
A short-dated put will turn a small move in the shares to a magnified move in the contract. That’s the asymmetry I trade.
APA might pull back 5% – 10%. But the move in the contract could easily reach +100%.
Remember, volume is thin during the summer. The big money is still on vacation until the fall surge shows up. So keep your size small. Small enough that a slow, choppy day doesn’t rattle your confidence.
Mark your levels and wait for this play to come to you.
APA isn’t the last stock to follow this pattern…
How I turned $5,000 into $493,000.*
Stay Street Smart,
Jeff Zananiri
*Past performance does not indicate future results, Not typical.
