When thinking about Iran’s strategic decision-making process it may be helpful to use a framework borrowed from options markets. We use the construct as an analytical device because it offers a useful way of thinking about how the value and durability of Tehran’s leverage change with both the oil price and the political calendar. We recognize the framework abstracts from the profound human consequences of the conflict.
One could argue that Iran’s strategic decision calculus resembles that of being long a high-strike oil call with an expiry around the US midterms. The regime’s leverage has risen sharply as the conflict has persisted and oil has moved higher, particularly with polling suggesting that gasoline prices are politically consequential for the White House. This implies that the value of Tehran’s leverage may be greater ahead of the midterms than it will be once they have passed. With oil still trading close to local highs but beginning to show signs of upside exhaustion, and only a few weeks remaining until the midterms, one could argue that Tehran is approaching peak gamma. When close to the option strike and close to expiry, relatively small moves in the underlying produce very large changes in delta, leaving Iran with a highly convex position at precisely the point at which accelerating theta decay shortens the window in which disruption to Hormuz can be converted into maximum political pressure.
The same framework also highlights the increasingly unforgiving economics of carrying that optionality into expiry. When the underlying asset is trading close to the strike price and with little time to expiry, the gamma on the option is elevated but so too is the rate of time decay. In market terms, an option holder presented with the opportunity to crystallise a substantial portion of the position’s convexity, rather than retain exposure to a binary terminal payoff, may choose to monetise the option ahead of expiry. If Tehran is indeed approaching peak gamma, the rational conclusion may be that reopening Hormuz in exchange for an end to the war could allow it to convert a temporary and highly convex source of leverage into a more durable political outcome.
Oil is Showing Signs of Upside Exhaustion
Brent Front Future Price, Fibonacci Retracement Levels and 14d Relative Strength Index
Source: Bloomberg, Citadel Securities, data as of Sep 2026. Figures are for illustrative purposes only. Past performance does not guarantee future returns.
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