U.S. Markets open in 4 hrs 7 mins

Major leveraged bets against energy sector

David Russell (david.russell@optionmonster.com)

Cautious trades continue to build in the energy space after a big rally this summer.

optionMONSTER's tracking systems detected heavy call buying in the Direxion Daily Energy Bear 3x exchange-traded fund, which moves in the opposite direction as the energy sector. Most of the activity focused on the October 8 calls for $0.95 to $1. More than 45,000 changed hands against open interest of just 418 contracts.

Because ERY is leveraged to move in the opposite direction as the sector, those calls represent a bearish bet on energy. They're expressing a similar sentiment as recent trades in SPDR Energy Fund detailed by Chris.

ERY rose 0.24 percent to $8.40 in afternoon trading. It's lost more than two-thirds of its value since July as energy stocks rallied. Given its reliance on derivatives to generate its performance, the fund is susceptible to losing value from time decay if the index remains in a range. But if it drops sharply, the fund could really benefit from the volatility increase.

The fund typically trades fewer than 1,000 contracts in a session, but today volume is almost 60 times normal amounts.

More From optionMONSTER