Breaking Down This Big Energy Stock Bet

Options volume is running in the top percentile of its annual range

Managing Editor
Apr 20, 2020 at 11:08 AM
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Even though oil prices are sputtering today, a big winner on Friday, April 17, was WPX Energy Inc (NYSE:WPX). In light of Friday's breakout, options traders are blasting the energy stock, with a greater-than-normal tilt toward puts. 

Mid Friday, WPX put option volume was running in the top percentile of its annual range. Over 31,000 puts crossed the tape -- a whopping 50 times the intraday average. Most of this activity occurred at the November 2 put, where new positions were being opened.

A deeper dive reveals that most of the activity is sold-to-open. More specifically, it suggests one speculator sold to open 30,000 November 2 puts for 31 cents. If that's the case, the trader would keep the entire premium collected of roughly $930,000 (premium paid * number of contracts sold * 100 shares per contract) if WPX holds above $2 by the close on Nov. 20, when the contracts expire. To put the size of the trade in perspective, peak open interest of just 10,070 contracts is at the May 8 call.

As implied above, the penchant for puts skews against the typical trend. In the past 10 days, 9,278 calls have exchanged hands, compared to just 923 puts. However, WPX does sport a Schaeffer's put/call open interest ratio (SOIR) which ranks in the 87th annual percentile, suggesting short-term options players are also favoring puts over calls right now. 

Meanwhile, short interest continues to build, up 11.3% in the two most recent reporting period. The 35.92 million shares sold short accounts for almost 9% of WPX's total available float. But  there's much more optimism among analysts, 16 out of 19 rate the equity a "buy" or better, with zero "sells" on the books.

On the charts, WPX Energy stock is still down 69% year-to-date, even with today's rally baked in. And while the shares have more than doubled off their March 18 lows near $1.94, there's resistance looming overhead at their 40-day moving average.

Daily Stock Chart WPX


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