United States Oil Fund LP ETF (USO) Option Bull Bets $1.4 Million

United States Oil Fund LP ETF (USO) is falling in step with crude oil

by Karee Venema

Published on Jul 13, 2016 at 2:47 PM
Updated on Jul 13, 2016 at 2:50 PM

After soaring on Tuesday, crude oil is in free fall today, in the wake of a downbeat outlook on global supply from the International Energy Agency (IEA) and a disappointing domestic crude inventories report. Falling in step with crude futures is energy-based exchange-traded fund (ETF) United States Oil Fund LP ETF (USO) -- which was last seen down 4.4% at $10.70. Nevertheless, one bold option bull is keeping the faith, betting big on a rebound over the next several months.

Taking a quick step back, around 60,000 call options have traded on USO today, compared to about 56,000 put options -- 1.3 times the average intraday pace. Most active is the ETF's October 11 call, due to one massive block of 15,000 contracts that was likely bought to open for about $1.4 million (number of contracts * $0.92 premium paid * 100 shares per contract). This is the most the call buyer stands to lose, should USO settle south of $11 at October options expiration, while profit will accumulate on a move north of breakeven at $11.92 (strike plus premium paid).

Widening the sentiment scope reveals it's been put buyers who have been active in USO's options pits in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 544,068 USO puts over the past 50 sessions, compared to 283,834 calls. Plus, the resultant put/call open interest ratio of 1.92 sits just 2 percentage points from a 52-week peak.

Echoing this put-skewed bias is USO's Schaeffer's put/call open interest ratio (SOIR) of 1.46. Not only does this show that puts outweigh calls among options expiring in three months or less, but it ranks above 72% of all comparable readings taken in the past year. In other words, short-term speculators are more put-heavy than usual toward USO.

Drilling down, peak put open interest across all of USO's options is found at the July 11 strike, where 83,313 contracts are currently in residence. According to the major options exchanges, the majority of these puts have been bought to open in recent months. However, given today's slide in the shares of United States Oil Fund LP ETF (USO), it looks like a number of these speculators are selling to close their now in-the-money puts ahead of this Friday's front-month options expiration.

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