For the past two sessions, we have seen a pickup in call activity in a leveraged/inverse fund that tracks the U.S. Energy equities sector.
ERY (Direxion Daily Energy Bear 3X) calls have been purchased and it looks like institutional players are aggressively positioning for near term downside in the Energy Sector.
Most ETF portfolio managers think of the energy equities sector in terms of popular “long” ETFs including XLE (SPDR Energy), VDE (Vanguard Energy), OIH (Market Vectors Oil Services), IYE (iShares Dow Jones U.S. Energy), and XOP (SPDR S&P Oil & Gas Exploration and Production).
ERY is designed to provide 3 times the daily leveraged “inverse” exposure to the Energy Select Sector Index, which is the same index that XLE tracks on the long side. Familiar equity names that are held within many of the funds just mentioned include XOM, CVX, SLB, OXY, COP, APA, NOV, APC, HAL, and EOG).
It is also worth noting that aside from the ERY call buyers, we noted a small pickup in put buying in USO (U.S. Oil Fund), which tracks Crude Oil futures, not the performance of individual oil related equities. This said, the bearish looking trading could certainly be related since there is a historical correlation present between crude prices and the related companies that are exploring, producing, and distributing crude. Finally, the Energy sector has severely trailed the broader equity market not only year to date, but over the past 1 year.