In an unpredictable trading environment, adaptation is not only necessary but crucial. Uncertainty caused by inconsistency, the dominant characteristic of the oil market in recent months, has forced market players to find new ways to manage risk or bet on future events by recalibrating traditional trading tools that were not necessarily at the forefront of their arsenal in previous years. One such tool is options, which give the buyer the right to buy or sell Oil futures at a pre-agreed price. Another is trading inter-month spreads, which involves buying and selling Oil futures contracts for different delivery periods; these spreads tend to show a high correlation with outright prices.

Recent data suggest that the combination of the two – calendar spread options (CSOs) – has been growing in popularity ever since the Ukrainian war broke out in 2022, with a further boost observed this year, most likely due to the capricious policymaking of the second Trump administration. The year-to-October average open interest (OI) in WTI CSOs has approached 1.1 million lots, more than triple the OI registered in 2022 and a year-on-year increase of 125%. The average daily volume (ADV) shows an almost equally exponential rate of growth. This year's ADV of 20,340 contracts compares with 5,654 contracts three years ago and 12,436 contracts in 2024.

The rise in CSO volume is an unmistakable sign that market players – hedgers, traders or money managers – are adapting to new trading conditions. Volatility, both daily and intra-day, aggravated by frequent policy changes and geopolitical turmoil, makes trading outright prices a risky endeavour. The structure of the CME Group flagship Crude Oil contract has been and can be equally hectic. In fact, there have been occasions when the daily price change of inter-month spreads exceeded that of the flat price.

Under the current circumstances, interest in CSOs will remain strong. Inter-month spreads are ideal instruments to hedge against price or geopolitical risk, potential changes in weather patterns or shifts in oil inventory levels due to expected oversupply. This strategy is made even safer by CSOs. As uncertainty and unpredictability seem to have become the new norm, the popularity of CSOs is unlikely to decline in the foreseeable future.