Options Hot as USO Swings With Oil Prices

USO shares jumped 12% yesterday, but are down more than 3% today

Sep 17, 2019 at 2:06 PM
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It's been a volatile week for oil prices, which nabbed their biggest one-day gain in a decade yesterday on news of weekend airstrikes against Saudi Arabian crude production facilities. Today, October-dated crude futures are down 4.6% at $59.98 per barrel, after Reuters reported Saudi Arabia will restore output earlier than anticipated. This whipsaw price action has been seen in the United States Oil Fund (USO), which jumped 12.2% on Monday, but was last seen down 3.5% at $12.27.

USO options traders have been piling on to the energy exchange-traded fund (ETF), too. During yesterday's surge, roughly 445,000 calls and 230,000 puts were exchanged, eight times what's typically seen in a single session. The September 11.50 and 12 puts in particular were active, and were possibly used to initiate a long put spread.

If this is the case, the bearish trader is betting on USO settling right at the sold 11.50 strike when the front-month options expire at the close this Friday, Sept. 20. Risk, meanwhile, is limited to the initial net debit, should the fund settle above the bought 12 strike at week's end.

In today's trading, around 132,000 calls and 157,000 puts are on the tape, quadruple the expected intraday amount. The December 10.50 put has seen the most action, and it's possible speculators are selling to open new positions here. Elsewhere, it looks like traders are buying to open September 13.50 calls, anticipating a rally up near its April peak by Friday's close.

 uso daily price chart on sept 17



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