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December 7, 2016  Wed 8:14 AM CT

Option traders are indicating that upside potential may be limited in some key energy names.

Oil stocks have been spiking higher this month after news that OPEC nations have agreed to production cuts. But yesterday our systems detected heavy call selling in the U.S. Oil Fund, Occidental Petroleum, and Range Resources:

  • USO: 5,000 July 14 calls were sold for $0.28 against open interest of 1,190 contracts.
  • OXY:  5,000 Weekly 72 calls expiring on Jan. 6 were sold for $0.70 to $0.72 against open interest of 40 contracts.
  • RRC: 3,000 December 37 calls were sold for $2.10 against open interest of 1,509 contracts.

Short calls generate income and lock in the price where a stock must be sold. The trade is usually done in conjunction with long shares in a covered-call strategy, reflecting a belief that gains will be limited through expiration. (See our Education section)

USO fell 0.53 percent to $11.29 yesterday but is up 13 percent in the last month. OXY fell 0.8 percent to $70.41 yesterday and is down 9 percent in the last three months. RRC fell 0.08 percent to $38.39 yesterday but is up 20 percent in the last month.

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