Unusual Options Activity in Market Vectors Oil Services ETF (OIH)

| January 12, 2015 | 0 Comments

Unusual Trading VolumeUnusual Options Activity in Market Vectors Oil Services ETF (OIH)

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:

Market Vectors Oil Services ETF (OIH) is a popular tracking fund for the oil equipment and services industry. The ETF holds 25 stocks in the industry including well known oil services companies like Schlumberger (SLB) and Halliburton (HAL). Check here for more info on the fund.

Over the last year, OIH is down roughly 25%. The current share price is $33.83, and is 40% from the 52-week high of $56.70 and just 3% off the 52-week low of $32.78.

So what does unusual options activity in OIH tell us?

As you probably would expect, the oil services industry has been hit hard by the crash in crude oil prices. Although, while OIH is down about 25% from this time a year ago, crude has dropped 45%.

However, a large trader may believe OIH – or oil services companies in general – have further to fall.

Here’s the deal…

A trader bought 10,000 February 32 puts while selling the February 29 puts the same number of times. The total cost of the trade, also known as a put debit spread, was roughly $0.63 per spread.

With a put debit spread, the most the trader can lose is $0.63. However, the max gain is a much higher $2.37. Just to put that into perspective, the max gain on this particular trade is a whopping $2.4 million.

In order for this bearish spread to be maximized, OIH would need to fall to $29 by February expiration, nearly $4 below the previous 52-week low. However, with oil prices at multi-year lows, it does make sense for equipment and services companies to follow suit.

There is also the possibility that this spread is a hedge against a large long position in OIH – either in the ETF itself or in the components. It would be a relatively cheap way to hedge long exposure. Keep in mind, one major reason for using spreads is to cut the cost of putting on a certain position.

Here’s the chart of OIH:

unusual option activity, a chart of OIH

As you can see, OIH has definitely had a tough go of it lately. However, it has leveled out, and is sitting well below the 50-day moving average. As such, you could make a case this trade is either a hedge or a speculative position. Typically though, large spread positions like this are speculative trades.

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
Options Trading Research

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.