Energy Sector Finds A Flurry Of Bullish Option Activity

Bullish unusual option activity in the energy sector was flourishing on Thursday. Bullish option activity appeared in the Energy Select Sector SPDR® Fund (NYSEARCA: XLE) many other stocks in the sector. This space is very oversold and might be signaling a strong bounce off support in the coming weeks.

What’s Up with Oil Prices?

I do a one-hour daily class on TheoTrade. In late August I discussed bearish indications popping up on oil futures term structure. However, those bearish indications didn’t worsen during the sell-off in September and the curve flattened.

Oil supplies are working their way back into the five-year historical range. Even Wednesday’s surprise 500K crude oil inventory build didn’t cause oil futures to fall. While the fundamentals aren’t great for significantly higher oil prices, it is an indication that prices may be stable to rising.

Oil Stock Option Activity

In the unusual option activity log that I update intraday, there were several large block trades that stood out. Here’s a listing of the stocks and the trading activity:

Diamondback Energy Inc (Nasdaq: FANG)

• Trade: Long Call Vertical
• Activity: 3,500 20 NOV 20 35/40 calls traded @ $0.79 filled in one print
• Outlook: this is a high reward and low risk trade looking for FANG to trade above $40 by November 20.

Energy Select Sector SPDR® Fund (NYSEARCA: XLE)

• Trade: Long Call
• Activity: 21,426 15 JAN 21 $45 call BOT @ $0.09 to $0.10 mostly bought in two prints
• Outlook: the strike selection is indicating a retest of the June high near the $45 price level by the start of 2021.

Exxon Mobil Corporation (NYSE: XOM)

• Trade: Long Call
• Activity: 9,872 6 NOV 20 $35.50 call BOT @ $1.25 in one print
• Outlook: that trade was entered slightly OTM but is pointing to higher near-term prices in XOM. Even a retest of the August high would be a significant move.

Marathon Oil Corporation (NYSE: MRO)

• Trade: Long Call Vertical
• Activity: 25,000 20 NOV 20 5/6 calls traded @ $0.10
• Outlook: this trade maximizes its gains above $6 by November’s expiration.

Schlumberger NV (NYSE: SLB)

• Trade: Long Call
• Activity: 3,223 16 OCT 20 $17 call mostly BOT @ $0.29 to $0.32
• Outlook: the trades break even around $17.30 and may be looking for a move towards $20 I the near term.

 Apache Corporation (Nasdaq: APA)

• Trade: Long Call Vertical
• Activity: 10,000 15 JAN 21 $12.50 BOT @ $0.95; 9,900 15 JAN 21 $15 call sold @ $0.50 in one print
• Outlook: while I listed as a long call vertical, it could be a roll down of the $15 strike to $12.50. Either way, it’s a bullish indication and may be looking for a retest of the August high near $16.50.

SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP)

• Trade: Long Call Vertical
• Activity: 2,351 20 NOV 20 50/55 call vertical BOT quickly @ $0.94
• Outlook: the trade points to the price closing above $55 by November’s expiration.

Conclusion

Thursday marked a rather significant moment for the energy sector. With potential stimulus on the horizon and normalization of supply, it could mean big movement in the coming months. That doesn’t mean that they will be back to historical highs in price and profitability. However, the nice thing is that you don’t need them to in order to make money.