Bearish Chevron Options Premiums Spike as Oil Sinks

CVX put buyers have been busier than usual in recent weeks

by Karee Venema

Published on Nov 20, 2018 at 2:46 PM

Energy stocks are being dragged lower by sinking oil prices today, after the head of the International Energy Agency (IEA), Fatih Birol, said, "We are entering an unprecedented period of uncertainty in oil markets." While January crude futures sink 6.7% to $53.35 per barrel, the shares of blue-chip energy giant Chevron Corporation (NYSE:CVX) are down 3.2% to trade at $115.65 -- and options traders are positioning for even bigger losses.

With about 90 minutes left in today's trading, roughly 10,500 puts have changed hands on Chevron, compared to fewer than 6,500 calls. The December 116 put is one of the more active strikes, and it looks like traders may be buying to open new positions here for a volume-weighted average price of $3.06. If this is the case, breakeven for the put buyers at the close on Friday, Dec. 21, is $112.94 (strike less premium paid).

More broadly speaking, speculators have been buying to open puts relative to calls at a quicker-than-usual clip in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Chevron's 10-day put/call volume ratio of 0.86 ranks in the 96th annual percentile.

Meanwhile, 30-day at-the-money implied volatility (IV) on CVX was last seen at 27.7%, in the 96th annual percentile. This means that short-term options are pricing in relatively lofty volatility expectations at the moment. Plus, the 30-day IV skew of 19% registers in the 97th percentile of its 12-month range, suggesting short-term puts have rarely been more expensive than calls, on a volatility basis.

It's been a volatile period for the stock, per its 30-day historical volatility of 30%, which ranks higher than 90% of all comparable readings taken in the past year. After bottoming near $107.50 late last month -- a region that's served as a floor since September 2017 -- CVX stock rallied all the way back to $122. The security retraced 61.8% of this short-term surge, and a quick bounce from here put the shares back near their 320-day moving average.

cvx stock daily chart nov 20


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