Oil's Fall Draws Options Traders To Explorers And Producers
May 11 2011 - 5:57PM
Dow Jones News
Gasoline futures plunged after a surprise uptick in inventories,
pulling crude prices downward. The drop was so steep it triggered a
rare five-minute halt of all energy trading on the New York
Mercantile Exchange for the first time in more than two years.
Options volume was heavy in bearish contract combinations in the
SPDR S&P Oil and Gas Exploration and Protection Fund, made up
of stocks like W&T Offshore Inc. (WTI), Gulfport Energy Corp.
(GPOR) and Petrohawk Energy Corp. (HK), for the third time in a
week.
Put volume in the ETF was the fourth highest on record and five
times the daily average, trade alert data showed.
One large block of opening investors built positions that profit
if the wild swings that have racked the commodities complex in the
last week continue through the end of this year. These traders
bought $59 "puts" that expire in December while also purchasing $62
"calls" that expire the same month. The move, known as a
"strangle," profits only if the ETF rises or falls sharply before
the end of the year. The XOP closed down 4.4% at $57.84.
Calls grant the right, but not the obligation, to buy shares at
the "strike" price by a set time frame, while puts grant the right
to sell shares.
Also on Wednesday, buyers of bearish puts dove into $47
contracts that expire in September.
-By Chris Dieterich, Dow Jones Newswires; 212-416-2611;
christopher.dieterich@dowjones.com