Complex play is bearish on energy ETF
Chris McKhann | firstname.lastname@example.org
Total XLE option volume tops 104,000 contracts, which is more than triple its daily average in the last month. Almost all of the action is in one three-way combination trade, optionMONSTER's systems show.
A trader bought 28,100 June 70 puts for the ask price of $4.60, and at the same time sold the same number of June 66 puts for the bid of $3.05 and June 80 calls for $1.86. The volumes were more than open interest at each strike, indicating new activity.
The XLE is up 1.69 percent to $72.81 in early afternoon trading. The exchange-traded fund has broken out of its range of the last couple of weeks but is still is trending lower from its 52-week high of $77.35 set in mid-September.
Today's combination trade takes in a credit on the trade and stands to make $0.31 if the XLE remains between $80 and $70 at expiration. The maximum gain would come with the fund at or below $66.
This could be hedging against an existing long position in the XLE, using the put spread as a collar. But such a position would lose its hedging effectiveness below $66. (See our Education section)