2 Reasons to Be Cautious on the United States Oil Fund LP ETF (USO)

The United States Oil Fund LP ETF (USO) is approaching a potential technical trouble spot

by Alex Eppstein |

Published on Dec 1, 2016 at 10:50 AM

The United States Oil Fund LP ETF (USO) is staying hot as crude futures continue to trek higher on the back of the OPEC deal. The shares were last seen up 3.8% at $11.35. However, based on USO's technical backdrop -- as well as a heavy accumulation of call options overhead -- there's no guarantee of clear sailing ahead.

For starters, the exchange-traded fund (ETF) is currently butting up against its descending 320-day moving average. This trendline rejected USO in October, sending it into single-digit territory. Not to mention, even with the equity tacking on 13% since Tuesday's close, it's just 3% above the year-to-date breakeven mark -- underperforming the broader stock market.

uso daily dec 1

On the options front, there could be trouble ahead, too. Overall open interest currently ranks in the 98th percentile of its annual range. What's more, a heavy accumulation of calls at the overhead December 11.50 strike could translate into a short-term speed bump. Specifically, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) confirms considerable buy-to-open activity here, and an unwinding of the hedges related to these out-of-the-money positions could act as resistance.

In fact, short-term open interest on USO is overwhelmingly call-skewed. The ETF's Schaeffer's put/call open interest ratio (SOIR) stands at 0.67, resting just 13 percentage points from a 52-week low.

This trend toward calls is holding up this morning, as well. Call options on the United States Oil Fund LP ETF (USO) are running at nearly twice the usual intraday rate, and significantly outweigh the number of puts on the tape. In addition, six of the ETF's 10 most active strikes are on the call side of the aisle.

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