The Oil Hedge Did Its Job, Silver Is the Real Trade

Pretty much everything right now traces back to one story: the war between the US and Iran, and the oil it has pulled offline. Crude is up a long way since the fighting started, and that single shock is most of why May CPI came in at 4.2%. Strip energy out and the picture is far calmer, with core goods actually a touch softer on the month. So the inflation scare everyone is reacting to is really an oil scare in disguise, and that thread runs through the whole book.

A couple of positions did their job this week and came off. The volatility hedge (VXX) closed for a clean win, and I took half the crude trade off into the rally. What is left is the part I actually care about: silver, and now a smaller gold position sitting next to it for similar reasons.

Crude, through USO, was always the short-term, tactical leg of the book. It was there as a hedge in case the talks fell apart and the war premium kept climbing, and it worked nicely. I bought into the conflict-driven lows near the one-year mean and sold half at 134.90 as oil pushed back up. With a deal looking more likely now, I would rather bank that win than fall in love with the trade. The half I am still holding is simple, because oil rises on escalation and falls on peace: if the war flares up again and crude spikes I sell the rest into roughly 135, and if a deal gets signed and oil rolls over I stop the remainder near 74 on the front-month crude future.

On top of that I added a small, cheap call position on USO today, around half a percent of the book. To be clear, this is not a hedge on my existing USO long, because it points the same way. It is a separate, defined-risk play on the deal itself: if the talks break down and oil gaps higher the calls pay, and if a deal is signed the most I lose is the small premium. The convexity is cheap right now with volatility back down. While I am at it, one more distinction: VXX, which I closed this week, was a related idea to the crude trade rather than the same one. That was about a stretched equity tape and the odds of a volatility pop, this is about the war premium in oil. Different drivers, but both were really just ways to get paid if things turned messy.

Silver (SLV) is the one I genuinely care about. It is the longer-term, higher-probability swing, not a hedge. The case is structural. More and more of silver's demand is industrial now, think solar, electronics and the whole electrification build-out, and that gives it a growing demand floor that something like gold simply does not have. On top of that sits the usual safe-haven side, and an oil-driven inflation scare with live geopolitical risk is exactly when that part earns its keep. I built it in two tranches and sold a cash-secured put underneath, which lowers my cost now and adds more at a better price if it gets assigned.

This week I added a smaller gold position (GLD) on similar safe-haven logic. Gold came back to a clean technical bounce area, the 2nd standard-deviation band on its 6-month chart, which tends to attract buyers. The reason it is smaller than silver is the flip side of that demand story. Gold is a purer, cleaner monetary play and does not have silver's industrial demand, so it is steadier but carries less of the structural upside that makes silver the bigger bet. I entered around 4,130 on gold itself and I am looking to run it toward roughly 4,450.

McDonald's (MCD) is quietly doing very well. It is a quality mean-reversion long I bought at a deviation extreme, and it is now up around 285. The plan from here is to take half off as it pushes into the 289 area, then let the rest run toward 295, probably trimming a little each day depending on how it trades. Corn (CORN) is a small, purely technical bounce off a deeply oversold extreme, sized so small that being wrong barely matters.

On the closed side the record stays clean. VXX banked this week, and UAL, the jet-fuel-panic dislocation trade, is still a closed example worth a read. Realised P&L sits at around +3.4% in portfolio terms, and every position I have closed so far has been a winner. As always it is percentages only, and the whole thing updates live on the Trade Log.

Two things really matter this week. First is the Fed on the 17th. Almost everyone expects them to sit on their hands, and the May inflation print shows why it is such an awkward spot. The headline ran hot at 4.2% on a roughly 23% jump in energy over the year, while core goods actually fell on the month. You cannot cut into a headline like that, but with the core cooling there is not much reason to hike either, so the real driver of rates right now is the oil price, which means it is the war.

Second, and bigger for me, is the US and Iran deal that is expected to be signed on Friday the 19th. If it lands, oil and the inflation scare should come down together, which is good for risk broadly and is exactly why I have already banked most of the crude hedge. If it falls through and the fighting picks back up, oil and volatility snap higher again, which is what the small call position is there for. Silver is the position that holds up across more of those outcomes than anything else I own, which is why it is the one I am happy to carry through it all rather than trade around. Reply any time, I read everything.