XME Options Bears Cash Out as Steel Stocks Tumble

Put buyers are liquidating their positions

May 1, 2018 at 2:50 PM
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Steel stocks are taking a hit today, after President Donald Trump extended tariff exemptions for the European Union, Canada, and Mexico to June 1, allowing an additional 30 days for trade negotiations. Against this backdrop, the SPDR S&P Metals & Mining ETF (XME) is down 2.3% at $34.16, and options bears are cashing out.

Taking a quick step back, nearly 9,000 XME puts are on the tape so far today -- four times what's typically seen at this point in the day. Most active is the May 35 call, where it appears traders are selling to close the positions. The bid price on these front-month calls was last seen at $0.50, meaning those who bought the options on April 19 for a volume-weighted average price of $0.42 are staring at paper profits.

Elsewhere, new positions are being purchased at XME's June 33 put, suggesting options traders are bracing for a move to levels not seen since mid-December. This would also require XME to breach its rising 200-day moving average, which has contained today's drop, and served as a floor in late March and early April.

In fact, this trendline was perched near $33.50 a few weeks back, a level that coincides with the exchange-traded fund's (ETF) mid-February lows and a 61.8% Fibonacci retracement of a rally from its November lows to its late-January three-year high of $39.62. Longer term, the fund is up 16.2% year-over-year.

 xme price chart may 1


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