How Options-Hedging Turbocharged Oil Volatility

Trade amplified a price drop to 15-month lows and now could help fuel a rebound

Oil has traded this year within a relatively narrow price range. Storage tanks at a California refinery.Photo: BING GUAN/REUTERS

The economic fears gripping Wall Street have sparked outsize swings in oil prices, exacerbated by trading that investors and analysts say has little to do with the fundamental value of crude.

One culprit is an arcane area of trading known on Wall Street as delta hedging, aimed at reducing the risks tied to directional price moves. 

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