Despite the fact that it seems like the entire Middle East is burning at the moment, WTI crude oil, which had broken out above $105 in June after two prior attempts, has since declined 10% in the last month:
You can debate the reason for the weakness – worries regarding global growth, oversupply, impending cooling of geo-political tensions – I frankly don’t have the answer, but what I can see is technical weakness at a time where I would have normally expected oil to be well bid.
Just a bit ago, there was a large options trade in the S&P Oil and Gas etf where a trader rolled down and out what is likely a profitable bearish directional view or a hedge.
When the etf was $73.62, a trader sold to close 15,000 of the Aug 79 puts at 5.25 , and used the premium to buy 30,000 of the Sept 73 puts for 2.50 to open. So the trader liquidated Aug for a total of $7,875,000 in premium and turned around and bought Sept at-the-money puts for $7,500,000. The roll probably suggests that this is a hedge, but you never know. The August leg likely closes a position opening on June 27th (highlighted in Too Many Options post from June 30th), where a trader bought 35,000 Aug 79 puts for 1.75 when the stock was $81.38.
Looking at the one year chart of the XOP, it appears that the etf is approaching an important support level at the prior breakout level from April, and the 200 day moving average a little less than 1.5% below:
I would add one more point. When the XOP Aug 79 puts were bought, the etf had just had a sharp move from the all time highs, and vol had moved up a little from multi year lows. When a portion of the Aug puts were sold today, 30 day at the money implied vol was up nearly 30% from the purchase levels:
The moral of the story is to buy protection when you can, at reasonable levels, not when you have to.