XLE Options Trading Picks Up as Oil Prices Fall

Options volume has been relatively quiet on Energy Select Sector SPDR ETF (XLE)

Feb 7, 2017 at 3:28 PM
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Energy Select Sector SPDR ETF (XLE) options trading has been relatively quiet of late, though today volume is running at an accelerated clip. Calls and puts are crossing the tape in near parity, with 23,942 of the former and 21,836 of the latter on the tape, 1.7 times what's typically seen at this point in the day. Options traders are targeting the March 70 put and 73 call -- the two most active contracts -- and while it's not exactly clear how this trade is lining up, it could be indicative of a possible long strangle. Elsewhere, more clear-cut action is happening at XLE's weekly 2/10 71.50-strike put, where traders are buying to open the options, betting on a steeper retreat for the shares through week's end.

As touched upon, though, today's faster-than-usual options activity marks a change of pace on XLE. In fact, total open interest for the energy exchange-traded fund (ETF) hit a 12-month low of 565,628 contracts as recently as Jan. 23, and was last seen slightly north of here at 781,411 contracts -- in the low 4th annual percentile. The notable trend has been toward puts, however, with 488,511 puts currently outstanding versus 292,900 calls.

Echoing this is XLE's top-heavy front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 1.89. Simply stated, near-the-money puts almost double calls among options residing in the standard February series, which expires at next Friday's close. In the near term, the ETF could find a foothold from the heavy accumulation of put open interest docked just underfoot at the February 70 strike -- where more than 6,300 contracts currently reside -- while a breakout could be contained at peak front-month call open interest of 16,797 contracts at the February 77 strike.

xle options

What's more, these levels of possible options-related support and resistance could be reinforced by key technical junctures for the oil-related shares. For starters, while XLE has been pulling back with crude oil futures this week, the shares have seemingly found a foothold atop $71.50, which is a 38.2% retracement of their April-December rally, while just below is their 200-day moving average, currently located at $70. To the upside, meanwhile, any potential rallies could be contained in the $77-$79 region, which roughly coincides with a 38.2% retracement of XLE's 2009-2014 surge, as well as the ETF's December 2016 peak.

xle daily price chart

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