How Options Traders Are Playing These 3 Sinking Oil Stocks

Oasis Petroleum Inc. (NYSE:OAS), Plains All American Pipeline, L.P. (NYSE:PAA), and ConocoPhillips (NYSE:COP) are all seeing accelerated option activity amid oil's decline

Dec 4, 2015 at 2:44 PM
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It's been another volatile day for crude futures, after the Organization of the Petroleum Exporting Countries (OPEC) announced it would be lifting its production ceiling, despite a global supply glut. As a result, option traders are flocking to several oil stocks, including Oasis Petroleum Inc. (NYSE:OAS)Plains All American Pipeline, L.P. (NYSE:PAA), and ConocoPhillips (NYSE:COP). Let's take a closer look at how speculators are positioning themselves on these three stocks. 

OAS is off 5.8% at $9.72. It's now dropped 41.2% in 2015, with its last two breakout attempts cut short by its 200-day moving average, a trendline the shares haven't conquered on a closing basis since September 2014. Still, it appears some traders are expecting a rebound in the equity. 

Calls are trading at twice the expected rate today, and the most popular strike by far is the January 2016 10-strike call, where over 1,300 options have crossed. In fact, this is more than twice as many as the next closest option. Data suggests buy-to-open activity here, meaning traders are betting on OAS to topple $10 before January expiration. 

A bullish options backdrop isn't unusual for Oasis Petroleum Inc. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), more than five calls have been bought to open for each put over the past 10 sessions. The corresponding call/put volume ratio of 5.21 outranks 65% of all other readings from the past year. 

As for PAA, the shares were last seen at $21.20, 4.9% lower on the day, and earlier skimmed a six-year low of $20.20. The stock has been a long-term laggard, though. At this time last year, it was trading above $50. 

And options traders are betting on even more losses for PAA. Today's put volume is three times the amount usually seen, with the December 20 put coming in as the most popular. Buy-to-open activity seems likely here, as speculators place money on a move below $20 by the close on Friday, Dec.18, when front-month options expire. 

This is unusual behavior for Plains All American Pipeline, L.P. traders. The stock's 10-day ISE/CBOE/PHLX call/put volume ratio stands at 4.26 -- higher than 84% of similar readings taken in the past year. 

COP has dropped 1.2% today, last seen at $50.97. The security has actually outperformed the S&P 500 Index (SPX) slightly during the past three months, but recently gave in to resistance in the $55-$57 range to hit two-month lows today. 

Among specific options, some traders appear to be selling to open the weekly 12/4 51-strike calls. By doing so, they're hoping the $51 level acts as a (very) short-term ceiling for the shares. 

ConocoPhillips traders are certainly no stranger to bearish bets, though they've usually placed them in a different fashion. Specifically, COP's 10-day put/call volume ratio of 2.73 ranks only 1 percentage point from an annual bearish extreme. 
 

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