Energy SPDR fund put options busy as oil falls
Wed Mar 23, 2005 01:35 PM ET
CHICAGO, March 23 (Reuters) - Investors who trade options on the Energy Select Sector SPDR fund (XLE.A: Quote, Profile, Research) , an exchange-traded fund, have sharply stepped up their bearish bets after a drop in oil prices on Wednesday.
A total of roughly 59,154 options -- dominated by 55,237 puts -- traded on the ETF by midday Wednesday.
Oil prices slid below $54 a barrel on Wednesday as U.S. crude inventories rose to their highest level in nearly three years and a recovering dollar lured some fund money out of commodities.
"Investors are bidding up the prices of the fund's puts, pushing up implied volatility because they want to protect themselves from a further downside move in oil prices," said Paul Foster, chief options strategist at theflyonthewall.com.
The fund, which was down almost 2 percent to $42.08 by midday Wednesday, is one of the most active of the SPDR sector funds, said Michael Schwartz, chief options strategist at Oppenheimer & Co.
The Select Sector SPDRS are ETFs built around nine industry sectors that together have the same components as the Standard & Poor's 500 stock index .
A large proportion of the Energy Select SPDR fund puts traded Wednesday were the contracts that give investors the right to sell the fund at $40 a share by mid-April, about $2 below the fund's current value.
So far a total of 39,149 of the 40 puts have traded on open interest of 18,829 contracts.
"It appears spreaders are selling the April 42 and 43 puts to help finance their purchase of the XLE April 40 puts," Foster said.
He also noted the implied volatility for the options stood at around 29 percent, up from last month's level of 20 percent.
Implied volatility measures as a percentage how much the options market thinks the price of a security will move.
Oil prices slid after the U.S. Energy Information Administration said in its weekly report that crude oil stocks rose by 4.1 million barrels last week to 309.3 million barrels, the highest level since July 2002.
Prices were also pressured in part by a rebound in the dollar's value to a one-month high against the euro, boosted by the Federal Reserve's decision on Tuesday to raise interest rates by a quarter percentage point.
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Unbelieveable, look at the massive amount of April puts vs. calls on XLE, finance.yahoo.com . Wondering whether anybody has checked this in the past, and if so has it ever been this lopsided in favor of Puts? Wondering whether the ratio of puts to calls on this SPDR might have some reliability as a contrary indicator, such as is the case for the commodities futures. |
