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Energy fund faces downside play

Chris McKhann (chris.mckhann@optionmonster.com)

The SPDR Energy Fund is drawing a bearish position even as shares hit all-time highs.

Today's big trade comes in the May Weekly 93.50 options that expire in 17 days, which saw 3,000 contracts bought for $0.77. At the same time, 6,000 of the 90 puts were sold at that strike for the bid price of $0.19. The previous open interest at each strike was below 200 contracts, so this is clearly new positioning.

The trader is spending $0.39 to open this ratio spread , which is the amount at risk if the XLE remains above $93.50. The maximum gain would be realized if the stock falls to $90 in the next two weeks, but below that level the trader would face the obligation to buy shares . (See our Education section)

The XLE is up fractionally to $94.39 today, adding to yesterday's new closing high. The exchange-traded fund topped at $94.8 this morning, a new all-time intraday high as well. It has been running higher after bouncing off support at $88 less than a month ago.

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