Options Traders Go Bearish as Energy Sector Takes a Hit

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Options traders are changing their tune in a Canadian energy stock as sentiment turns bearish toward the sector.

Market Insights has covered the ongoing bullish activity in oil-sands producer Cenovus Energy (CVE). Both times the spike in call volumes was followed by rallies in the share price.

Today, just the opposite happened:

  • Someone sold 12,500 May 10 puts for $0.92.
  • At the same second, he or she purchased a matching number of June 9 puts for $0.60.
  • Volume was below open interest in the 10s but not the 9s. That suggests an existing position was closed and rolled to the lower strike.
  • The transaction resulted in a net credit of $0.32.

Puts fix the price where a security can be sold, so they can profit when shares drop. Today’s trader apparently made money from the stock’s recent slide. Rolling the position recovered some of their capital and provides an additional month of downside exposure.

Cenovus (CVE) chart with select moving averages and daily option volume.
Cenovus (CVE) chart with select moving averages and daily option volume.

CVE fell 0.33 percent to $9.07 in afternoon trading, and is down 15 percent from its high in late April. It’s dropped along with other energy stocks as crude-oil inventories rise.

There was also heavy volume today in CVE’s June 11 calls, but the large blocks were below open interest. That may indicate existing bullish positions were closed.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.