Interesting comments in teh WSJ about some bearish spreads in the XLE
Drop in Crude Price Spurs
Big Bets on Energy Fund
By TENNILLE TRACY
June 26, 2008; Page C4
The options market appeared to be preparing for a drop in oil prices.
With the price of crude closing at $134.55 a barrel Wednesday, traders took big bets on Energy Select Sector SPDR Fund, an exchange-traded fund that tracks oil and natural-gas producers, as well as drillers and other service companies.
Activity in the Energy Select fund's options spiked to six times the normal level, with investors trading 908,000 calls that allow them to buy the shares and 149,000 puts that allow them to sell.
The bulk of activity took place in July calls, where traders showed up to sell large batches of "call spreads" -- selling July $85 calls and buying July $86 calls as part of one transaction. Feeling bearish about the energy sector, those investors think the Energy Select fund could slip below $85 before July 18. The fund closed at $87.11, down less than one percent.
Traders took bets on the sector after the Energy Department announced that crude-oil stockpiles rose last week for the first time in six weeks, even as analysts expected those supplies to drop.
"It certainly hasn't been a winning strategy in recent years to bet against energy companies, but perhaps these [transactions] mark a turning point," said Frederic Ruffy, an options strategist with WhatsTrading.com.
Elsewhere in the options market...
