SPDR S&P Oil & Gas Exploration & Production Options (XOP): Unusual Trading Activity

| September 12, 2012 | 0 Comments

XOP OptionsOptions in the SPDR S&P Oil & Gas Exploration & Production (XOP) ETF showed a large trade on the bullish side at the end of yesterday’s trading session.  

The ETF has recently climbed to a four-month high.  And this has at least one large trader looking for a big move up in the coming weeks.

XOP closed up 1.8% yesterday to trade at $56.19.  And for the purpose of this trade, it’s important to note the rally comes off a double bottom formed at support near $45 a share in June.

This is important because the trader does not see a scenario where the XOP trades back to its June $45 per share bottom. 

As a matter of fact, he’s see’s this bullish uptrend in XOP continuing. 

Yesterday afternoon a trader came in and purchased a whopping 11,650 put contracts.  These contracts were the XOP September $50 strike put options at an average price of $0.57 a piece.

Then, in a staggering move, a minute later our detection system picked up the largest single block stock trade of the day.  Nearly 1,200,000 shares of stock were purchased at a price of $55.90.

So, what’s this trader’s strategy?

It appears he wants to be long the stock so that on a big move between now and September expiration he can capture profits dollar for dollar on the way up.

However, what’s so crafty about this trade is that he drew a line in the sand by buying the put options.  Now, no matter what happens, he can’t lose money below $49.43 a share.  This is roughly 10% of the stock price over the next week and a half.

It’s obvious this trader feels quite comfortable with the risk/reward profile of the trade.  And so do I.

Now, what’s the story here?

This fund tracks the S&P Oil & Gas Exploration & Production Select Industry Index.

The index represents the oil and gas exploration and production sub-industry portion of the S&P Total Market Index.  It accounts for roughly 73 of the largest oil and gas production names.

The benchmark is an equal-weighted index and thus maintains higher turnover than market-cap-weighted funds.

If you’re bullish on oil and natural gas prices, then the SPDR S&P Oil & Gas Exploration & Production is the best way to gain equities-based exposure.

To further put your mind at ease, some of the biggest names that make up XOP include Exxon Mobil (XOM), Valero Energy (VLO), and Tesoro (TSO).

It all sounds good… but what else is contributing to this trader’s bullish position?

Simple, the fund is a low-cost way of gaining direct exposure to the most relevant companies in the US oil and natural gas exploration and production industry.  And it provides broad diversification, which is good for any portfolio.

In addition, XOP’s equally weighted portfolio offers a small-cap tilt.  And in this unbelievable market, small-caps have been in a serious uptrend lately.  Small-caps have been outperforming other equities in almost every sector, as they normally do in these large rallies.

So, it won’t be a real surprise to see XOP climb higher in this current market environment.

We’ll wait and see if this bottom calling will turn into large profits.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.