Put Buyers Blast MRO Stock as Oil Prices Spiral

Short-term traders are unusually put-skewed on MRO

Jul 16, 2018 at 2:01 PM
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Oil is plummeting today on speculation the Trump administration is considering tapping reserve crude supplies in an attempt to ease rising gas prices. Energy stocks are feeling the heat, too, with Marathon Oil Corporation (NYSE:MRO) one of the many names to be selling off -- down 6.5% to trade at $20.15 -- and options traders are targeting even bigger losses.

At last check, more than 21,000  puts have been traded -- five times what's typically seen at this point in the day, and volume pacing in the 100th annual percentile. Most active is the weekly 7/27 20-strike put, where all signs suggest new positions are being purchased for a volume-weighted average price of $0.42. If this is the case, breakeven for the put buyers at next Friday's close is $19.58 (strike less premium paid).

However, short-term options traders already have an unusual bias toward puts. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.88 ranks in the 80th percentile of its 12-month range, pointing to a relatively heavy put-skew in the front three-months' series of options.

Drilling down, peak front-month put open interest of 10,833 contracts is found at the July 14 strike. Data from Trade-Alert indicates the bulk of these puts were bought to open back in early April, when MRO stock was trading just below $16. More recently, options traders have targeted the July 20 put, where north of 6,000 new positions were initiated late last month.

Since its early March low at $14.25, Marathon Petroleum stock has surged 41% -- and topped out at a three-year high of $22.74 last Tuesday, July 10. And although MRO has breached recent support at its 50-day moving average, the round $20 level is containing today's slide, just as its done since a mid-May bear gap.

mro stock daily price chart july 16


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