USO Options Bears Turn Up Ahead of OPEC Meeting

Though put buyers have been active, the number large speculators with long positions on oil has increased

Aug 7, 2017 at 2:00 PM
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A two-day meeting of the Organization of the Petroleum Exporting Countries (OPEC) is getting underway today in Abu Dhabi, United Arab Emirates, as the world's top oil producers gather to discuss compliance of their agreement to cut crude production. Anxiety surrounding the meeting has September-dated crude futures down 1.5% at $48.85 per barrel, which is putting pressure on the United States Oil Fund (USO).

The oil exchange-traded fund (ETF) fell into single-digit territory earlier to hit $9.94, but was last seen down 0.6% at $10.07. The round $10 has served as support since late July, and corresponds with a 50% retracement of USO's 2016 lows and highs. Also, USO has seemingly found a level of support in its 20-week moving average, which previously acted as resistance. Still, the fund is down 14% year-to-date. 

uso weekly chart august 8

Options traders have been sticking with their bearish bets. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 2.84, which ranks just 1 percentage point from a 12-month high. This means put buying has been unusually popular, relative to call buying. 

Plus, USO has a Schaeffer's put/call open interest ratio (SOIR) of 2.39 -- in the 100th annual percentile. So, not only does put open interest more than double call open interest among options expiring within the next three months, but this margin is at one of the widest points it's been at over the past year.

But whether you're bullish or bearish, it's a good time to target USO options. This is according to the ETF's Schaeffer's Volatility Index (SVI) of 26% -- in the low 10th annual percentile. In other words, near-term options are pricing in relatively muted volatility expectations at the moment. 

Finally, a quick look outside the options pits reveals some optimism for oil. Specifically, the latest Commitments of Traders (CoT) report revealed large speculators increased their long positions on crude oil for a sixth straight week. This puts the number of traders who are net long crude at the highest point since early March. 

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