2 Energy ETFs Making Noise in the Options Pits

The Energy Select Sector SPDR ETF (XLE) and United States Oil Fund LP ETF (USO) have been hot lately -- both on the charts and in the options pits

Sep 29, 2016 at 12:01 PM
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While oil took a short breather earlier this morning, the commodity has since resumed its uptrend from yesterday, when crude futures took off on an OPEC breakthrough. Options traders are responding to the volatility today, especially on a pair of big-name exchange-traded funds (ETFs) -- the Energy Select Sector SPDR ETF (XLE) and United States Oil Fund LP ETF (USO).

At last check, XLE was 0.5% higher at $70.16 -- not far from its annual high of $71.94, notched three weeks ago. Meanwhile, in the ETF's options pits, puts are outpacing calls, 29,000 contracts to 19,000. This is an aberration, historically speaking. According to data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly twice as many calls as puts during the past two weeks. Plus, the resultant call/put volume ratio of 1.83 ranks in the bullishly skewed 91st annual percentile.

Digging deeper into XLE's intraday options action, the October 68 put is the most popular strike. The majority were purchased on a sweep of nearly 9,500 contracts, but with open interest outstripping volume, it's unclear whether these positions are being opened or closed.

In any case, now is an attractive time to purchase premium on short-term Energy Select Sector SPDR ETF options. The ETF's Schaeffer's Volatility Index (SVI) of 20% sits below 85% of all readings from the past year, suggesting volatility expectations are relatively muted.

Meanwhile, a day after jumping almost 5%, USO is up another 2.5% at $10.92. The shares are now testing their 100-day moving average, which rejected a rally earlier this month.

In the options arena, USO puts are flying off the shelves at triple the expected intraday rate -- and nearly twice the pace of calls. In fact, intraday put volume currently registers in the 98th percentile of its annual range. The most active strike is the October 10 put, and according to ISE data, traders are largely buying to close out-of-the-money positions here.

Longer term, though, United States Oil Fund LP ETF traders have been buying to open calls over puts at a rapid-fire rate. USO's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.47 outstrips 84% of all readings from the prior year. It looks like short-term strikes can be purchased on the cheap, too, relatively speaking. The ETF's SVI of 43% ranks in the bottom quartile of its annual range.

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