USO Oil Trade — Execution Report

The trade was entered on Tuesday, March 24. USO was trading between $114.69 and $115.66 through the session, WTI around $98, Brent at $112. The Strait of Hormuz had been effectively closed since March 4. Iraq declared force majeure on foreign-operated oilfields on March 20 after exports from southern ports halted. Iran struck Kuwait's Mina Al-Ahmadi refinery with drones that same week. The supply picture was already under visible stress.

Update: the May structure was closed after the headline regime shifted toward managed de-escalation. Read the May 6 update.

We built a three-leg barbell: one directional call, one core call spread, and one small tail-event spread.

The Structure

Leg 1: $135 Call ~20% of position cost

The directional anchor. Naked calls with no cap on upside. These start paying once USO clears $143 and keep running from there. This was the higher-probability leg of the structure. If oil moved at all, this was the first thing expected to make money.

Leg 2: $150/$180 Call Spread ~80% of position cost

The core position. This is the Somnium barbell. Buy the $150, sell the $180 against it. Maximum payoff is $30 per spread at full value. This is where the thesis lives. It captures the base case where the market prices in sustained disruption without needing a full system break.

Leg 3: $215/$245 Call Spread small addition on top

The tail-event layer. If oil truly breaks and USO runs past $215, this adds $30 of spread payoff per contract. It was cheap enough that it barely moved the total cost but added significant convexity in a system-break scenario.

All three legs expire May 15. The position is sized at roughly 1% of the portfolio. Fully defined risk. Max loss is the premium paid, known on day one.

Payoff Scenarios

Management Rules

The management rule was simple: sell into strength, do not hold to expiry.

The $135 call gets partial profit at 2-3x and we exit the majority at 3-5x. The $150/$180 spread gets partial at 2-3x and the majority at 5x or above. The $215/$245 lotto is pure optionality. We sell into any spike that brings it to 3-5x.

Trigger signals: WTI above $120 means the setup is working. $125-135 is the core profit zone. The acceleration signal is headlines shifting from "disruption" to "shortage," when buyers stop optimizing price and start securing supply.

Time decay runs against us and accelerates after mid-April. If the thesis does not materialize by then, the position bleeds faster.

What We Changed

The core structure paired the $150/$180 spread with the $135 call. The only addition was the $215/$245 lotto on top. Small cost, meaningful convexity if oil runs past the historical analog levels.

Portfolio Context

This sits outside our normal strategy. Our core business is selling cash-secured puts on quality names and collecting time decay. The book right now is short puts on VST and MU, LEAPs with long runways. Oil is completely uncorrelated to that exposure.

We also carry a standing tail hedge on SPX (bear put spread) that benefits from the same risk-off environment. If the Iran situation escalates enough to tank equities, the hedge pays on the equity side while USO pays on the oil side. Two uncorrelated asymmetric bets pointing in the same direction.

The position was designed to be asymmetric, defined-risk, and separate from the core options-income strategy.