Oil option price volatility doubled to $80 in two months: Experts

The volatility of oil option prices doubled to $80 in the last few days from $25-30 in December 2025, responding to the U.S. action in Venezuela and now Iran, according to analysts.

Oil options are contracts that give traders the right to buy or sell the commodity at a predetermined price on a future date. It is usually used by industries and traders to hedge their holdings from losses due to sudden spikes. Option contracts are traded at a strike price which is the predetermined price. 

An increased interest in a specific strike would mean traders expect the commodity to reach that price. “Options are as liquid as $90-$100. All the strikes have got active. Many of them were not very active about a few days back,” said Navneet Damani, who heads Currency and Commodities research at Motilal Oswal Financial Services Ltd. 

Active strike in all of the prices above $80 means that traders expect the oil prices to hit them any time soon. Mr. Damani said that it is a matter of few hours that the oil prices can hit $90 dollar a barrel. “Another round of bombarding in Middle East. It will easily go $90,” he said adding that fixing a range for the oil price movement at this point would not be a good idea.

An increase in oil price would seep into the Indian economy through heightened inflation. Fuel and Power constitute 13.15% of the producers’ inflation index and about 5.48% of the new consumer inflation index. Experts say that elevated oil price would increase inflation.

Sector analysts,however, say that supply shortage of oil and its outcome on Indian corporates’ bottomline and the economy  needed more attention over the state of oil and natural gas prices.

Keeping in mind the heavy dependence of India to West Asian oil and gas imports, “if this scenario continues for a few more weeks, then price becomes irrelevant. What remains more relevant is the supply side,” said Sumit Pokharna, VP Fundamental Research, Kotak Securities. 

A short supply would mean plan shutdowns as a shifting to an alternative energy source would take time and would cost dear. From an equities perspective , barring IT, all stocks especially in ceramic and pharmaceuticals sector would experience a sell off as their Q4 results would reflect the cost increase, he said.