USO Options Bears Don't Buy the Oil Bounce

Saudi Arabia agreed to curb crude exports by an additional 1 million barrels per day

Jul 25, 2017 at 3:03 PM
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Oil prices have been on a tear this week, after Saudi Arabia said it would cut its crude exports by roughly 1 million barrels a day at this week's Organization of the Petroleum Exporting Countries (OPEC) meeting. September-dated crude futures have tacked on 5% so far this week to trade at $47.89 per barrel -- a seven-week high, and fresh off their biggest one-day gain of the year. The upside is being seen in the United States Oil Fund (USO), too, though one options trader is betting on the energy shares to run out of steam in the next two months.

At last check, USO shares were trading up 2.8% at $9.76, bringing their week-to-date advance to 4.6%. Nevertheless, the fund is stalling near $9.80 -- home to a 38.2% Fibonacci retracement of its February-to-June decline and a trendline connecting a series of lower highs since April. 

uso daily chart july 25

With USO being contained today by technical resistance, put trading has picked up -- with 191,115 contracts on the tape, three times what's typically seen at this point in the day, and volume is on track to settle in the 96th annual percentile. As a point of contrast, USO put volume hit a 52-week high of 516,625 contracts traded in a single session on June 20, when oil prices sank into bear-market territory.

Trade-Alert points to a bearish roll-up in the front- and back-month series, with one trader apparently selling to close the August and September 9 puts to buy to open September 9.50 puts. This speculator appears to have also sold to open September 10 calls. If this is the case, the trader is betting on USO to remain trading in single digits through the close on Friday, Sept. 15 -- when the series expires.

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