EOG Resources Option Trader Makes $10.3M Bet On 8% Downside

EOG Resources Inc EOG shares are down 52.5% year to date, but at least one large option trader is betting on more downside from the oil & gas giant as the COVID-19 oil market downturn drags on.

The EOG Trade: On Monday morning, Benzinga Pro subscribers received an option alert related to an unusually large EOG trade.

• At 10:52 a.m., a trader bought 39,000 EOG put options with a $39 strike price expiring on Oct. 23 at the ask price of $2.65. The trade represented a more than $10.3 million bearish bet.

Why It’s Important: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of Monday’s EOG option trade, it could certainly be institutional hedging.

Oil Prices Headed Lower? Oil prices dipped on Monday on concerns over lack of demand as the COVID-19 outbreak drags on. In addition, the potential end of a blockage on oil facilities in Libya could dump even more supply into an already oversupplied market.

At the Barclays CEO-Power Conference last week, EOG CEO Bill Thomas said U.S. oil production will likely never recover to pre-pandemic levels of 12.8 million barrels per day.

Thomas also said EOG is planning on maintaining its fourth-quarter production rate in 2021. Despite the lackluster macroenvironment, Thomas said EOG should successfully navigate the downturn.

"I'm very confident even in the most draconian scenario that you can possibly print, that EOG is going to be fine," he said.

The put buyer clearly isn’t as optimistic about the near-term outlook for EOG.

Benzinga’s Take: The $10.3 million put purchase has a break-even price of $36.35, suggesting 8% downside for the stock over the next five-plus weeks. Given the relatively short time horizon of the trade, the trader may also be anticipating some negative headlines out of the upcoming OPEC+ meeting on Thursday.

Related Links:

How Large Tesla Option Traders Are Playing The September Sell-Off

How To Read And Trade An Option Alert