Unusual Options Activity In Energy Select Sector SPDR ETF (XLE)

| March 9, 2015 | 0 Comments

Unusual Trading VolumeUnusual Options Activity In Energy Select Sector SPDR ETF (XLE)

As many of you know, unusual options activity can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.

This is something professional options traders pay a lot of attention to, and for good reason…  Unusual options activity can “tip off” big moves in a stock, either up or down.

So let’s take a look at some ‘interesting’ activity that caught our eye this week:

Energy Select Sector SPDR ETF (XLE) is the most actively traded energy sector ETF.  The ETF trades over 30 million shares per day.  Check here for more info on the company.

XLE is down 3% on the year so far.  The recent share price of $76.78 is 23% from the 52-week high of $100.38 and 7% above the 52-week low of $71.70.

So what does unusual options activity in XLE tell us?

Of course, the energy sector has been down this year along with the price of crude oil.  Oil and everything oil related generally dominates the energy sector.  So it makes sense for the overall sector to be struggling.

XLE had started to recover before the recent oil inventories number came out, and sent the shares lower.  It seems investors may have jumped the gun a little bit in getting back into XLE.  Moreover, at least one big options trader is expecting (or worrying about) further downside.

Here’s the deal…

Last week, 40,000 XLE April 75 puts were purchased at one time.  Keep in mind, a put makes money when the underlying stock (or ETF) goes down.

The puts traded for $1.47, which means the options start to pay off if XLE drops below $73.53.  The cost of the trade is a nearly $6 million, so this is clearly an institutional-sized transaction.

There are a couple possibilities here.  Most likely, a put trade this size is a hedge against a long energy portfolio.  The hedger is concerned about further downside in energy names.  Or, it could be a very large downside bet on XLE, for speculative purposes.

Here’s the chart of XLE:

unusual option activity, a chart of XLE

As you can see from the chart, XLE has broken below the 50-day moving average.  Bigger than expected crude oil inventories have resulted in a sharp turnaround in the ETF after it looked like it was on the road to recovery.

The large put buyer from last week is certainly concerned about continued downside into April.  Whether it’s a big hedge or a big downside bet, it’s probably not the best time to bet on an XLE rebound (based on this huge trade).

More Options Trading Ideas…

Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.

We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!

Yours in Profit,

Gordon Lewis

Note:  Gordon Lewis has been trading options for more than 15 years and he now writes and edits for Optionstradingresearch.com.  You can sign up for the newsletter and get a free research report. We are your go-to source for top notch options trading research.


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Category: Unusual Options Trading Activity

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.