San Antonio-based Valero Energy Corporation (VLO: sentiment, chart, options) is the subject of bullish speculation among options players. Last Friday, investors on the International Securities Exchange (ISE) bought to open 2,183 calls on the oil refiner, compared to just 858 puts. The equity's single-day call/put ratio was a healthy 2.54, with optimistic options more than doubling their pessimistic counterparts.
Friday's bias toward calls was simply a continuation of the recent trend among VLO's options players. During the past 20 days, traders on the ISE and the Chicago Board Options Exchange (CBOE) have bought to open 2.13 calls for every put. The equity's 50-day call/put ratio on these 2 exchanges is a similarly skewed 2.27.
As a result, the security's Schaeffer's put/call open interest ratio (SOIR) has cooled off to a tepid 0.36. This ratio indicates that calls nearly triple puts among options slated to expire within 3 months, and the current reading is hovering just 14 percentage points from a new annual low. In other words, short-term option players have been more optimistically aligned toward VLO just 14% of the time in the past year.
In the December series, peak call open interest is docked at the 20 strike. This option, which has 13,121 contracts in residence, is narrowly out of the money. With December-dated options set to expire at the end of the week, this round-number region could exert some resistance on VLO in the coming days.
Meanwhile, peak put open interest is located at the out-of-the-money 17.50 strike, with 8,909 open positions. This open interest configuration suggests that many speculators expect VLO to stay within its current trading range during the short term.
Since mid-October, the shares have been trapped by a sideways channel between the 15 and 20 levels. While VLO managed to close last week atop resistance from its 10-week moving average, the equity's 20-week trendline is dropping through the 25 region. Any rally attempts could meet their demise at this descending level of resistance.
Valero's fourth-quarter earnings report isn't scheduled to hit the Street until late January or early February, so there's no short-term catalyst in store for the stock. In the meantime, look for VLO to stay pinned beneath the 20 level this week. As market makers gradually unwind their hedges against the 20-strike calls they wrote, the resulting selling pressure should keep the shares depressed.
However, look for downside to be limited near the 15 region. Unless Valero is hit with some bad news during the next few days, this chart support should provide a reliable backstop as the shares retreat from the 20 region.
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