Traders Brace For OPEC Downside In Big Energy ETF
The Energy Select Sector SPDR (ETF) (NYSE: XLE) is off 16 percent year-to-date, by far the worst performance among the nine legacy sector SPDR exchange-traded funds. With another Organization of Petroleum Exporting Countries (OPEC) meeting looming this week, some options traders are betting on more downside for the goliath energy ETF.
Options And OPEC
Leading up to Friday's OPEC meeting, put activity in XLE has been brisk “with 83,000 puts already trading on the day, vs the one month average of 61k per day and 27k calls traded today,” according to Risk Reversal.
“There are a couple decent size trades in XLE Dec puts that caught my eye this morning, with the most active strike the Dec 65 puts, with 51,000 having traded so far,” the note continued.
There are plenty of positions to protect in XLE, as the ETF has hauled in over $1.9 billion in new assets this year. That is about $520 million than the Consumer Discretionary SPDR (ETF) (NYSE: XLY), easily the best performer among the nine established SPDRs this year. Among the nine SPDRs, only the Health Care SPDR (ETF) (NYSE: XLV) has added more new assets this year.
Options traders rushing into puts on XLE comes as other traders are piling into long positions in the United States Oil Fund LP (ETF) (NYSE: USO) ahead of the OPEC meeting.
USO And The OPEC Meeting
As Benzinga reported Wednesday, USO keeps attracting assets. To be precise, the ETF's 2015 inflows haul currently stands north of $2.8 billion, good for one of the best year-to-date inflows tallies among all exchange-traded products.
Clearly, investments in USO have been the ultimate good money after bad trade, but that also sets oil up to be, perhaps, the ultimate near-term contrarian trade. With money managers and other professionals barely willing to nibble at oil from the long side, the risk/reward in being long oil here is surprisingly favorable.
“It’s not just the OPEC meeting that traders are positioning in front of, with the ECB meeting tomorrow and most expecting further European QE, and the Dec 16th FOMC meeting where the market expects the Fed’s first rate increase since 2006, is all putting upward pressure on the dollar, and the obvious inverse relation to commodities like oil which settle in dollars,” added Risk Reversal.
A Last Look Into XLE
XLE devotes a combined 30.2 percent of its weight to Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX), the two largest U.S. oil producers. Exxon and Chevron are two of just eight members of the Dow Jones Industrial Average that are down at least 5 percent this year.
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