Update – XLE Jan Call Spread

by riskreversal December 2, 2016 12:41 pm • Trade Updates

On November 11th we laid out the case that from a technical perspective XLE, the energy stock etf, had the potential to hold its uptrend and make new highs for 2016. We expressed that view with a Jan call spread when the etf was 69.50:

XLE ($69.50) Buy the Jan 70/77 call spread for $2

  • Buy 1 Jan 70 call for 2.25
  • Sell 1 Jan 77 call at .25

In the original post we didn’t put too much value in the possibility of an OPEC production cut. We did get one and that’s helped the trade. Now with the XLE at 75 it may be a good opportunity to “sell the news” and take the profits of the post OPEC meeting bump in the shares:

UPDATE – Sold to close the XLE (75) Jan 70/77 call spread at 4.30 for a 2.30 profit
  • Sold to close 1 XLE Jan 70 call at 5.30
  • Bough to close 1 XLE Jan 77 call for 1.00

Now that the OPEC deal is old news, the cycle turns to actual implementation. There’s a possibility the crude consolidates or pulls back a little as the news trickles in, like today:

After the deal was announced on Wednesday, the market’s focus now shifts to the implementation and impact of OPEC’s first production agreement since 2008, which will be joined by non-OPEC producers.

Crude prices on Friday were pressured by data showing oil output in Russia rose in November to a post-Soviet high and news that Moscow would use its record November oil production as its baseline when it cuts output.

We like the idea of not being too greedy here and we’ll take another look if XLE pulls back a little.