One of the more interesting trades we have seen as of late involves XLE (SPDR Energy) downside put buying, specifically involving July 95 strikes.
XLE has been a clear winner year to date and especially recently, seemingly hitting new highs every day now on mounting tensions in Iraq.
Top holdings are of course XOM and CVX, which make up a good 28% of the portfolio, and there are 43 other names in the index outside of these too. SLB, COP, and EOG round out the top five, and it appears that some may be bracing for a potential reversal in the sector if not simply longs hedging a good sized position on the books into the weekend and near term.
XLE has had notable inflows YTD, taking in >$3 billion and is now a >$12 billion fund. This ETF is also the largest Energy Equity ETF in the space by a mile as well, trumping the second largest VDE (Vanguard Energy, Expense Ratio 0.14%) which only has about $3.2 billion in AUM.
With large cap value names like XOM and CVX for example (these two companies are ranked #1 and #4 respectively in terms of portfolio weightings in the S&P 500 Value Index and corresponding ETF IVE (iShares S&P 500 Value, Expense Ratio 0.18%) seemingly hitting new recenthighs day after day, any options activity in the space is interesting and stands out to us.
XOM and CVX by nature are Value stocks, with 2.70% and 3.50% yields respectively, and managers that may have been fortunate to either buy the stocks outright or via an Energy ETF with sizable weightings towards them like an XLE for example, three, six, or twelve months ago, have seen not only steady dividends roll in but also impressive breakout price performance which has recently trumped the broad market indices.
In any case, whether the future story is Bull or Bear, it seems like now is the best time to pay attention and stay focused not only on these stocks but the sector given the Iraqi situation as well as looming earnings
season for XOM, CVX and related names, which is really not that far off (end of July), as well as the typical seasonality of Gasoline prices around Labor day.
Even though most eyes today may be focused on the U.S. Open or the World Cup, when old school, Value stocks start behaving like Growth stocks, we generally take a closer look at everything we think we “know.” Related funds: ERY (Direxion Daily Energy Bull 3X Shares), ERX (Direxion Daily Energy Bull 3X Shares Expense Ratio 0.95%) which are 3X Daily calibrated to the same Energy Select Sector Index as XLE.
Energy Select Sector SPDR
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