Options Traders Turn Bearish on Energy Sector

October 30, 2013

After a significant rally in the energy sector, options traders are turning bearish, pressuring the largest exploration and production-focused exchange traded fund.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) dipped 1.8% Wednesday, trading around $70.6 per share. XOP touched a record high of $73.74 on Oct. 21.

One trader dumped 10,000 December $77 strike calls on XOP in exchange for 10,000 December $65 to $70 put spreads, Reuters reports.

The strike price, or exercise price, on the option represents the amount of profit per share gained on the sale of the option.

WhatsTrading options strategist Frederic Ruffy points out that new entrants are also betting against XOP and that bearish trading also occurred earlier this month.

“Some investors are possibly looking for a pullback in the sector after XOP rallied 30 percent year-to-date,” Ruffy said in the article.

Other oil and gas exploration and production ETFs include the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) , which was down 1.2% Wednesday, and the PowerShares Dynamic Energy Exploration & Production Portfolio (PXE) , which was down 1.0%.

SPDR S&P Oil & Gas Exploration & Production ETF

For more information on the energy sector, visit our energy category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.