WTI crude oil prices edging higher towards $50 a barrel, lingering closer to a three week's highs as traders were betting on OPEC meeting which will be able to hammer out a production freeze deal before the end of the month.

Additionally, as stated in our recent article Russian authorities have also uttered readiness to support an OPEC decision to freeze oil output, Russian Energy Minister Alexander Novak said on Wednesday.

This analyst retains the view that current tough negotiations are a necessary step to achieving a deal at the end of the month. However, we are not convinced that OPEC can deliver the 32.5 – 33.0 mbd of production that it announced in Algiers.

For now, we hold a cap of 33.3 mbd on Q2-Q4’17 OPEC output, which is sufficient to tighten oil markets.

While an informal meeting of OPEC members is likely to be convened in the Qatari capital, Doha, on Friday to build consensus over decisions taken by the group in September, an Algerian energy source said on Wednesday.

Prices rallied on Tuesday amid reports that several OPEC members were engaged in a last-minute push to overcome divisions between the cartel’s biggest producers.

The oil group reached an agreement to cap output to a range of 32.5 million to 33.0 million barrels per day in talks held in Algeria in late September. However, OPEC said it won’t finalize details on individual output quotas until its next official meeting in Vienna on November 30.

Hence, amid ongoing high volatility times in crude oil prices lead us to prefer to mitigate upside price risks of this energy commodity exposure to via a call spread if you are a risk averse, selling the 3m $60 call against being long the $48/bbl call which is at the money contract.

While aggressive bulls could also buy 3m +0.51 delta calls on hedging grounds as this derivatives instrument carries the Vega at its maximum when the option is ATM and declines exponentially as the option moves ITM or OTM.  This is because a small change in IV will make no difference on the likelihood of an option far out-of-the-money expiring ITM or on the likelihood of an option far into-the-money not expiring ITM. ATM options are far more sensitive since higher IV greatly increases their chances of expiring ITM.

Alternatively, we uphold longs in the June’17 Brent 55-60 call spread at $1.91/bbl.