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April 16, 2013  Tue 10:58 AM CT

XOP: SEE CHART GET CHAIN FIND STRATEGIES
The SPDR Oil & Gas Exploration & Production Fund is bouncing a day after posting its lowest close in more than three months, but one trader is positioning for another leg lower.

optionMONSTER systems show that more than 4,000 each of the April 56 and May 54 puts traded in unison. The big prints of 3,182 moved together, with the 56 puts sold for the bid price of $0.98 in volume below previous open interest of 14,870. The 54 puts were bought for the ask price of $1.28 against open interest of just 216 contracts, clearly indicating a new position.

Given the data and the market action, this appears to be a trader rolling a long-put position one month later and to a lower strike that is out of the money. This also could very well be part of a hedging strategy. (See our Education section)

The XOP is up 1.5 percent to $56 even in midday trading after posting its lowest close since Jan. 9 yesterday. The exchange-traded fund was above $62 at the highs of a month ago.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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