Back Derivatives Strategy

With Oil (USO) Back Near the Highs, Add Low-Cost 1×2 January Put Spreads to Position for a Move Back Lower By Year End

Published on February 18, 2026

Jeff Jacobson

As oil (USO) trades back up to the higher end of the very well-defined range it has now traded in for the better part of four years, I believe now is an optimal time to consider longer-term downside structures to position for a move back lower by year-end. Besides the rally back towards the top-end of the range, there are several reasons why I want to own longer-term downside structures for oil here:

1. Weaker seasonality for crude in the back-half of the year

Over the past 5 years, four of the worst months for oil have been AFTER July. If not for the large drop in oil last April on the tariff scare, the ONLY negative months for oil would all be in the back-half of the year. Given this seasonality bias, and the fact that oil is near the top-end of the range, we want to own downside structures out thru year-end.

A screenshot of a computer

AI-generated content may be incorrect.

Source: Bloomberg

2. USO 1-year implied volatility back at the highs

As oil has rallied, we have seen an accompanying move higher in the 1-year implied volatility. Since I am looking at ratio put spreads, I want to take advantage of this move higher in vol by overselling the “tail” puts that are at the bottom-end of the 4-year range.

A graph on a black background

AI-generated content may be incorrect.

3. Midterm elections in October

With the midterm elections this October, we have to wonder what the current administration will do to try and get oil prices lower ahead of that time? Therefore, I would think there should be a decided bias lower, especially if we see a continued bid.

Trade I suggest:

Buy USO Jan 15^th $74 puts 1X
Sell USO Jan 15^th $62 puts 2X
Costs ~ $0.50 (USO 78.60 ref)

Trade Details:

Buying the delta-neutral Jan 2027 1×2 put spread in oil (USO) after rally back towards the top-end of the well-defined multiyear range
Poor seasonality AND the upcoming midterm elections are both reasons why I could see oil trade back lower from here, especially in the back-half of the year
USO 1-year implied vol is back at the 1-year highs (why I strongly favor the 1×2 structure)
Trade is profitable between 73.50 and 50.50 at Jan 15^th expiration (-6.5% to -36%), with max profit at 62 (-21%). Those levels in USO roughly equate to buying the 60/50 1×2 put spread in crude
Trade is delta neutral to start as well as theta positive (and short vega)
Structure can be used to hedge long energy stock exposure (a trade we still favor), or as a bearish bet on crude given attractive price and volatility setup
Please reach out to me or the 22V sales team for updated pricing and execution capabilities

The GREEN area shows where the Jan 1×2 put spread is profitable at expiration

A screen shot of a graph

AI-generated content may be incorrect.

DISCLOSURES AND DISCLAIMERS

Analyst Certification

The analyst, 22V Research Group, primarily responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this research report.

Analyst Certifications and Independence of Research.

Each of the 22V Research analysts whose names appear on the front page of this report hereby certify that all the views expressed in this Report accurately reflect our personal views about any and all of the subject securities or issuers and that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views of in this Report.

22V Research (the “Company”) is an independent research provider. The Company is not a member of the FINRA or the SIPC and is not a registered broker dealer or investment adviser. 22V Research has no other regulated or unregulated business activities which conflict with its provision of independent research.

22V Research, LLC is a professional services and independent publication organization. 22V Research, LLC is not a securities broker-dealer, not a member of the Financial Industry Regulatory Authority (FINRA), not a registered investment advisor (RIA) and not a member of SIPC.

Securities transactions, when offered, are offered by 22V Securities, LLC through LPS Capital, LLC. Certain employees of 22V Securities, LLC are dually registered as securities representatives of LPS Capital, LLC or Analyst Hub Securities, LLC. 22V Securities, LPS Capital and Analyst Hub Securities are members FINRA, SIPC.

https://brokercheck.finra.org/

Current Ratings Definition.

SECTOR OUTPERFORM: An “outperform” rating anticipates the company will outperform the S&P Regional Banking Index (peer group).

SECTOR PERFORM: A “market perform” rating anticipates the company will perform in line with the S&P Regional Banking Index (peer group).

SECTOR UNDERPERFORM: An “underperform” rating anticipates the company will underperform the S&P Regional Banking Index (peer group).

Limitation Of Research And Information.

This Report has been prepared for distribution to only qualified institutional or professional clients of 22V Research Group. The contents of this Report represent the views, opinions, and analyses of its authors. The information contained herein does not constitute financial, legal, tax or any other advice. All third-party data presented herein were obtained from publicly available sources which are believed to be reliable; however, the Company makes no warranty, express or implied, concerning the accuracy or completeness of such information. In no event shall the Company be responsible or liable for the correctness of, or update to, any such material or for any damage or lost opportunities resulting from use of this data. Nothing contained in this Report or any distribution by the Company should be construed as any offer to sell, or any solicitation of an offer to buy, any security or investment. Any research or other material received should not be construed as individualized investment advice. Investment decisions should be made as part of an overall portfolio strategy and you should consult with a professional financial advisor, legal and tax advisor prior to making any investment decision. 22V Research Group shall not be liable for any direct or indirect, incidental or consequential loss or damage (including loss of profits, revenue or goodwill) arising from any investment decisions based on information or research obtained from 22V Research Group.

Reproduction And Distribution Strictly Prohibited.

No user of this Report may reproduce, modify, copy, distribute, sell, resell, transmit, transfer, license, assign or publish the Report itself or any information contained therein. Notwithstanding the foregoing, clients with access to working models are permitted to alter or modify the information contained therein, provided that it is solely for such client’s own use. This Report is not intended to be available or distributed for any purpose that would be deemed unlawful or otherwise prohibited by any local, state, national or international laws or regulations or would otherwise subject the Company to registration or regulation of any kind within such jurisdiction.

Copyrights, Trademarks, Intellectual Property.

22V Research Group, and any logos or marks included in this Report are proprietary materials. The use of such terms and logos and marks without the express written consent of 22V Research Group is strictly prohibited. The copyright in the pages or in the screens of the Report, and in the information and material therein, is proprietary material owned by 22V Research Group unless otherwise indicated. The unauthorized use of any material on this Report may violate numerous statutes, regulations and laws, including, but not limited to, copyright, trademark, trade secret or patent laws.