By its standards for volatility, the SPDR S&P Oil & Gas Exploration & Production ETF's (NYSE: XOP) 3 percent gain over the past week is tame, but that doesn't mean some traders are shy about betting on more upside for the heavily traded exploration and production exchange traded fund.
XOP, a highly liquid and often a favorite target of short sellers, has recently drawn some unusual bullish options activity.
“As mentioned in our ETF Options recap this morning, this week we have seen some notable upside call activity in XOP (SPDR Oil & Gas Exploration & Production, Expense Ratio 0.35%) consisting of March 42 strikes trading,” said Street One Financial Vice President Paul Weisbruch in a note out Thursday.
Wagers on XOP hitting $42 by March expiration imply a decent amount of upside from Thursday's close of just over $38.
“While XOP currently has a $38 handle, making these options more than 8% out-of-the-money, we note that since these are March options there is considerable time left until expiration and XOP has historically been a volatile mover, making these calls worth watching,” adds Weisbruch.
Risk-tolerant traders looking to capitalize on short-term moves in exploration and production stocks can consider the Direxion Daily S&P Oil & Gas Exploration & Production Bull Shares (NYSE: GUSH). GUSH attempts to deliver three times the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
“Given the bullish nature of options trading lately in XOP, and we note that when options trade in this segment in general XOP seems to always be the default name that is in play, having a rather liquid underlying options market, we are also watching “Bull” levered GUSH (Direxion Daily S&P Oil & Gas Exploration & Production Bull 3X, Expense Ratio 0.95%, $79 million in AUM) which has attracted some assets in the trailing one month period (over $12 million in),” notes Weisbruch.
GUSH's underlying index “includes domestic companies from the oil and gas exploration and production sub-industry. As of September 30, 2016, the Index was comprised of 60 stocks concentrated in the energy and oil and gas sectors. As of September 30, 2016, the companies included in the Index have a median market capitalization of $5.18 billion and an average market capitalization of $20.39 billion,” according to Direxion.
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