USO Options Volume Pops as Oil Tanks

USO options volume is on pace for the 99th percentile of its annual range

Jun 14, 2017 at 1:59 PM
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Oil prices are swimming in red ink today, after a one-two punch from the Energy Information Administration (EIA) and the International Energy Agency (IEA). Specifically, the EIA reported a surprising rise in U.S. gasoline inventories last week, while the IEA warned of a continued oil supply glut through 2017. Against this backdrop, the United States Oil Fund (USO) is exploring annual lows, and options on the oil exchange-traded fund (ETF) are flying off the shelves.

Just before the EIA inventories data came out, USO had seen roughly 27,000 calls and 45,000 puts change hands. At last check, more than 90,000 calls have crossed the tape, compared to a whopping 222,000 USO put options -- that's roughly two times the average intraday pace for USO options. Further, put volume is on pace for the 99th percentile of its annual range.

It's no surprise to find that the top five most active United States Oil Fund options are puts, led by the now in-the-money June 9.50 put, where more than 81,000 contracts have traded. With most of the action on the bid side, it seems many traders are taking profits on the puts ahead of Friday's expiration, with USO shares down 3.6% at $9.25, and just off an annual low of $9.20. Meanwhile, the August 9 and June 9 puts have taken silver and bronze, respectively, as far as volume today.

Put volume on the oil fund has been accelerating in recent weeks, amid USO's decline, peaking on May 26. As such, USO put open interest is near an annual high, with more than 2 million contracts outstanding -- in the 98th percentile of its annual range. The still out-of-the-money August 8.50 put is home to peak open interest among all series, with nearly 280,000 contracts in residence. Nearly all of the activity here transpired on May 26, when a block of 215,000 contracts was bought to open for $2.9 million (number of contracts * $0.135 premium paid * 100 shares per contract).

united states oil fund uso put volume
Chart courtesy of Trade-Alert


However, it's a good time to be a short-term USO options buyer. The ETF's Schaeffer's Volatility Index (SVI) of 30% is higher than just 19% of all other readings from the past year. In other words, USO's near-term options are still attractively priced right now, from a historical volatility standpoint.

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