Oil Unusual Option Activity Report

In case you were wondering when the oil rally would end, it’s not quite yet. At least that’s what today’s price and option’s activity would seem to indicate. The catalyst appears to be coming from an upgraded oil price forecast from Goldman Sachs based on improved fundamentals. Today’s rally is a key point in the trend of many energy names and the options market is indicating that it will continue.

Goldman on Oil

The oil forecast came from Goldman Sachs Group Inc (NYSE: GS). The company is projecting that Brent crude, which trades at a premium to West Texas Intermediate, could reach $70 in 2Q and $75 by 3Q.

The bullish catalysts are the inelastic supply of oil and increasing demand on a post-COVID-19 economic recovery. Looking at the current supply, you’ll see that we are well within the 5-year oil supply range in the U.S.

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The tightness of the market is a result of lower global production and imports. Current production is running over 2 million barrels a day below last year at the same time. The likelihood oil companies to increase supply dramatically is low.

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More than anything, the current forecast is looking for oil to remain elevated. This is particularly good news for oil companies that have largely slashed Capex spending and have pushed out large debt payments to 2024.

Oil Option Activity

The breadth of significant oil option activity was pretty telling that traders are looking for volatility in this sector. Here’s a breakdown of some of the stocks that option traders were targeting and the options they were trading.

• Energy Select Sector SPDR Fund (NYSEARCA: XLE)
  • 10,500 17 SEP 21 $52 call BOT in one print @ $3.60
  • 10,500 17 SEP 21 $59 call sold in one print @ $1.91
  • Trade rolls part 30 JUN 21 call vertical inventory out and up

• Energy Transfer LP Unit (NYSE: ET)
  • 39,854 5 MAR 21 $8 calls mostly BOT @ $0.06 to $0.20

• Cabot Oil & Gas Corporation (NYSE: COG)
  • 2,000 21 JAN 22 $35 calls mostly BOT @ $0.25

• Devon Energy Corp (NYSE: DVN)
  • 9,750 19 MAR 21 $22.50 call BOT in three prints @ $1.00 to $1.17
  • 9,750 19 MAR 21 $25 call sold in three prints @ $0.36 to $0.39

The activity for ET involved rolling a June call vertical out and up. DVN involved rolling a long call option for February to a March vertical.

Conclusion

Today’s activity wasn’t purely about oil since two of the symbols were more focused on Natural gas in COG and ET. However, the movement in the sector was pronounced and the outlook for production should benefit oil and gas producers. The option activity is also a follow-up to activity that I discussed in my daily sessions last week. In particular, the move in ET follows such activity, with today being the breakout day.