Skepticism Mounts as XOM, SLB, and EOG Slide

Short sellers have been increasing their exposure on energy names Exxon Mobil Corporation (NYSE:XOM), Schlumberger Limited (NYSE:SLB), and EOG Resources Inc (NYSE:EOG)

by Karee Venema

Published on Sep 14, 2015 at 2:34 PM
Updated on Sep 14, 2015 at 2:34 PM

U.S. equities markets have taken a turn for the worse today, as traders take profits off the table ahead of this week's highly anticipated policy decision from the Federal Reserve. Also weighing on investor sentiment is disappointing manufacturing data out of China, which is having a particularly negative effect on the energy sector. Three notable names participating in today's slide are Exxon Mobil Corporation (NYSE:XOM), Schlumberger Limited (NYSE:SLB), and EOG Resources Inc (NYSE:EOG). This is good news for short sellers, who have been upping the bearish ante on each of these oil-and-gas issues at a rapid-fire rate.

Short interest on XOM, for instance, surged 36% in the latest reporting period -- a time frame in which the stock plunged 8%. This negative price action only highlights the stock's withstanding technical troubles, though, with shares of XOM down 22% for the year at $72.36, and fresh off an Aug. 24 four-year low of $66.55. However, there's plenty of room for short sellers to increase their bearish bets, considering short interest represents a low 1.3% of XOM's available float.

Elsewhere on the Street, near-term traders are more put-heavy than usual, per XOM's Schaeffer's put/call open interest ratio (SOIR) of 1.08 -- in the 85th annual percentile. In the front-month series, peak put open interest is found at the September 80 strike, where more than 52,000 contracts are in residence.

According to the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), a number of positions have been bought to open here in recent months. In other words, Exxon Mobil Corporation traders were anticipating a close south of the round-number $80 mark at this Friday's close, when the series expires.

SLB short sellers doubled down on their bearish bets during the latest reporting period, although short interest still only accounts for a slim 2.4% of the stock's available float. Meanwhile, as shorts were raising the stakes, the stock was plunging 10.1% -- and sinking to a new two-year low of $68.01. Today, the equity is off 1.6% at $72.56, bringing its year-to-date deficit to 15%.

Despite the growing skepticism outside of the options pits, call buying has been popular in recent weeks. At the ISE, CBOE, and PHLX, SLB's 10-day call/put volume ratio of 2.41 rests above all other readings taken in the past year. Given the recent upsurge in short interest, though, some of this activity could be a result of shorts hedging against any unexpected upside.

In particular, the equity's weekly 9/11 series was popular in recent weeks, with the 75.50-, 76-, and 77.50-strike calls seeing the heftiest jumps in open interest over the past 10 days. Today, it looks as if traders may be initiating new positions at Schlumberger Limited's weekly 10/2 80-strike call, either anticipating -- or protecting against -- a near-term round-number breakout.

Short interest on EOG jumped nearly 42% in the latest reporting period, yet these bearish bets still only account for 2% of the equity's available float. As this selling pressure was ramping up, the stock was plunging 4.9%. If short sellers continue to increase their exposure, the security could be at risk of adding to its already dreary 17% year-to-date decline that has it churning near $76.61.

What's more, the equity could face additional pressure, should analysts take heed of EOG's long-term technical troubles. Currently, 13 out of 21 brokerages maintain a "buy" or better rating on the underperformer, with not a single "sell" to be found. Plus, the average 12-month price target of $92.69 stands at a 21% premium to the security's present price. A round of downgrades and/or price-target cuts could translate into headwinds for EOG Resources Inc.




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