The United States Oil Fund LP USO was down 7.5 percent this week as the trade war between the U.S. and China sparked fears over global oil demand. The volatility in the oil market triggered several large options trades in oil and gas stocks Friday as investors placed their bets on whether the downturn in oil prices is temporary.
The Trades
On Friday morning, Benzinga Pro subscribers received several options alerts related to oil stocks.
One trader sold 1,674 $16 strike-price California Resources Corp CRC puts expiring on June 21 at the bid price of $1.05. Possibly the same trader then purchased 511 $15 strike-price California Resources puts expiring on June 21 at the ask price of 70 cents and 750 $16 strike-price California Resources puts expiring on July 19 at the ask price of $1.90.
The three trades represent a net bearish position of just $2,500.
Another trader sold 500 Whiting Petroleum Corp WLL put options at a $26 strike price that expire on Sept. 20. The puts were sold at the bid price of 65.1 cents and represent a $32,550 bullish bet.
Finally, one trader bought 1,000 Oasis Petroleum Inc. OAS call options at a $5 strike price that expire on Nov. 15. The calls were purchased at the ask price of 85 cents and represent an $85,000 bullish bet at a break-even price of $5.85.
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 small sizes of the oil options trades, it’s unlikely they are hedges.
Buy The Oil Dip?
Oil options traders seemed somewhat bullish on Friday morning, but the relatively small size of the orders suggest they aren’t particularly convicted in their belief that the oil market will recover in the coming months.
The U.S. is on track to hit a record 13 million barrels per day of oil production by the end of 2019, but U.S. businesses impacted by the latest round of trade war tariffs could experience a slowdown in the second half of the year that could weigh on oil demand.
President Donald Trump plans to meet with China’s President Xi Jinping at the G20 summit next month, but a new China Morning Post report suggested the meeting may not occur.
Related Links:
Trade War Update: Trump Says Huawei Blacklist Negotiable, G20 Meeting In Jeopardy
These Bearish Tesla Option Trades Suggest More Downside Could Be Ahead
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
