Big Printin’ – $XOP $XLF

by Dan December 9, 2015 2:29 pm • Commentary

Crude Oil remains the headline, now down 11% this month a lone, trading very near 52 week and 7 year lows. Today the commodity opened up 3% after supply data came in weaker than expected, but has since reversed and is now down 1%.  When crude was at its highs, so were stocks, and the SPX has now reversed 2% from its highs, down 1% as I write. US Treasuries have rallied, with the TLT up about 1.25% from its morning lows, while the US dollar has surprisingly weakened, down 1% vs the Euro, below last week’s lows.

Traders are getting turned around in almost every risk asset in this environment. I think few market participants or pundits expected to be blindsided the way they were last week between the ECB’s actions and commentary that were initially less accommodative than expected then whipsawed the next day by Mario Draghi sparking a massive global equity rally with another “whatever it takes”.

Now this week, the price action in stocks (SPX down 2.5%, a third consecutive decline) would suggest that market participants are getting a tad nervous with the fed fund futures 80% probability that the FOMC will raise the Fed Funds rate by 25 bps next week, its first raise since June of 2006.

Here are a couple large options trades in sector etfs today that caught my eye. They likely demonstrate traders re-positioning prior directional bets:

XOP (S&P Oil & Gas etf): there was a roll down in strikes of a bullish view in Jan expiration . When XOP was $33.44, 16,000 of the Jan 40 calls were sold to close at 23 cents and 8,000 of the Jan 36 calls were bought to open for 94 cents. And then when XOP was $32.28 an hour and a half later, 30,000 of the Jan 40 calls were sold to close at 15 cents and 15,000 of the Jan 36 calls were bought to open for 70 cents. This roll has traded 90,000 by 45,000 so far.

XLF (Financial Sector etf): when the etf was $23.93 there was a large in contract size bearish roll from Dec out to June expiration.  It looked like 70,000 by 140,000 by 70,000 of the Dec 24/22/20 Put Butterfly was sold to close at 43 cents, and the premium was rolled out to June expiration where 70,000 of the 22/19 put spreads were bought for 50 cents.  The trader received about $3 million on the closing sale of the December put butterfly and spent $3.5 million in premium on the June put spread.  The June put spread breaks-even at $21.50, down 10%, with a max gain of up to 2.50 between 21.50 and 19, down 20% on June expiration.