Oil drillers have been pulling ahead of the broader market in
the last month, and one investor is positioning for more upside.
optionMONSTER's tracking systems detected a large transaction in
the SPDR S&P Oil & Gas Exploration & Production (
) exchange-traded fund. A block of 4,000 December 43 calls was
purchased for $2.61 against existing open interest. At the same
time an equal number of March 45 calls was sold for $2.69 in a new
The transaction resulted in a net credit of $0.08, and was probably
the work of an investor who owns XOP shares and is selling the
calls against them. The strategy, known as a covered call or
buy/write, generates income to reduce the cost of owning the
shares. (See our Education section)
In return, the trader agreed to sell the stock at a given price,
surrendering gains above that level. The position lets the investor
boost the exit price by $2 in return for holding XOP for an
additional three months.
The fund rose 0.59 percent to $44.07 in midday trading and is up
7.12 percent in the last month--almost twice the gain of the
S&P 500 during the same time. That marks a contrast over most
of 2010, when the XOP either tracked or lagged the broader market.
Despite claiming to represent the exploration and production
sectors, the XOP's largest holdings are refiners such as Sunoco,
Holly, Valero, and Tesoro.
The call roll pushed total option volume in XOP to triple the daily
average so far today.
(Chart courtesy of tradeMONSTER)
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