Hedge Funds Dump U.S. Energy Stocks to Buy Crude Options

Following a rally in energy stocks this year, hedge funds have been selling off U.S. oil company shares to pile into crude oil options, expecting a price rally in oil if the Middle East conflict escalates and a short-term pullback in energy shares, according to Goldman Sachs data reported by Bloomberg. Money managers have sold U.S. energy stocks for three consecutive weeks, per Goldman Sachs’s prime brokerage data.

Therefore, some portfolio managers have been dumping energy stocks to pile up into crude oil call options to hedge their risks in case of an escalation of the conflict in the Middle East. “Some of the hedge funds are selling oil shares, but since there’s still quite a bit of geopolitical risk, it makes sense to buy some call options on oil to protect yourself to the upside,” Frank Monkam, senior portfolio manager at Antimo, told Bloomberg.

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