Cherry Picks: Oil Rally Drives Energy Stocks Higher as Implied Volatility Surges
Cherry Picks: Oil Rally Drives Energy Stocks Higher as Implied Volatility Surges
By:Tom Preston
At the start of 2026, it was looking to be a good time for drivers and anyone else using oil. Experts were saying there was too much oil supply, and like the same situation in 2025, that could lead to lower prices.
But surprise, surprise, the price of oil has been going up.
Since the start of the year geopolitical tensions as well as growing demand from individuals and industry have pushed the price of oil steadily higher. And that’s made oil producing and processing stocks outperform the S&P 500.
Like most commodities, the implied vol of crude oil rises along with its price. That’s because unlike most stocks, the fear is to the upside in crude oil, where shortages can cause panic buying.
What’s interesting about the past few months is that the implied vols of the oil companies has been rising as well. This chart focuses in on the oil stocks with the most liquid options, which have tighter bid/ask spreads and higher open interest.
The uncertainty that’s driving up the prices of oil and oil stocks may not be ending soon. The disruption around Venezuelan, Iranian and Russian oil is persisting, and surprises are always possible. Add in the cap ex spending by the big tech companies to build out their AI dreams and that will drive demand for oil and gasoline, too. The option prices in many of these stocks reflect all that, with their out-of-the-money calls priced higher than equidistant out-of-the-money puts. That indicates the market sees risk to the upside, which might be enough for a trader to consider a bullish strategy in them.
The IV ranks of these stocks are high, which makes them good candidates for short option strategies.
TRADE IDEA
BP (British Petroleum)
Short 37 put March expiration with 23 DTE .66 credit
BP beat earnings estimates earlier this month but has been relatively flat since then. If oil continues to rally BP’s global business should benefit and keep its stock price up. If you are bullish on BP, the short 37 put in the March expiration with 23 DTE is a bullish strategy that has an 86% probability of making 50% of its $66 max potential profit before expiry vs a $3,634 max risk of BP goes to $0, and that generates $2.31 of positive daily theta.
Tom Preston, tastylive chief market strategist, is responsible for the brokerage’s trading strategy, client-facing trading software and futures trading products. He writes tastylive's Cherry Bomb newsletter. He's been trading options since 1992. For live daily programming, market news and commentary, visit tastylive or the tastylive YouTube channel. Trade with a better broker, open a tastytrade account today. tastylive Inc. and tastytrade Inc. are separate but affiliated companies.
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