Hedge Funds Eye Exotic Options to Play Huge Cross-Asset Swings

Since the start of the Iran war, oil-driven wild price swings have prompted institutional investors to trade cross-market gyrations using exotic hybrid options. This is boosting demand for complex derivative structures, likely widening option-implied volatility and pressuring liquidity in energy-related and correlated markets, while increasing counterparty and model risk for portfolios.

Analysis

Since the start of the Iran war, oil-driven wild price swings have prompted institutional investors to trade cross-market gyrations using exotic hybrid options. This is boosting demand for complex derivative structures, likely widening option-implied volatility and pressuring liquidity in energy-related and correlated markets, while increasing counterparty and model risk for portfolios.