(Bloomberg) -- Investors should take advantage of the surge in oil prices to finance bearish bets on the U.S. equity market, according to Citigroup Inc.

The recent attack on Saudi Arabian crude production sent oil volatility soaring to above-average levels, making it more attractive to sell put options on the commodity -- if you believe prices will continue to rise, said strategists including Jeremy Hale in a note Thursday. The proceeds could then be used to buy protection against a sell-off in stocks, where volatility is below average and downside risks remain, they said.

“Heightened geopolitics can be simultaneously negative for equity prices through the growth channel and positive for oil prices through supply shocks,” they wrote. “Buy S&P 500 puts financed by oil puts.”

Crude futures surged after Saturday’s drone attack. Brent contracts are about 8% higher on the week, after giving up some of the spike on Monday.

The Citi strategists see downside risks to stock prices thanks to factors including a protracted U.S.-China trade war, over-optimistic earnings expectations and the increased probability of a recession in 2020. They envisage supply disruption in Saudi crude as likely to sustain higher oil prices.

“These developments further validate our view that geopolitical tensions will be protracted,” they wrote. “This is a price shock and maybe an inflation shock and a negative-growth shock.”

To contact the reporter on this story: Cormac Mullen in Tokyo at cmullen9@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger

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