ETF Chart of the Day: Cautious on Energy

We have seen some downside put activity in the $1.3 billion fund XOP (SPDR Oil & Gas Exploration & Production, Expense Ratio 0.35%) specifically involving August 79 puts.

This may very well be tied to the upcoming earnings season in the sector, as it looks a bit like options activity that we have noted recently in related ETF XLE (SPDR Energy Select Sector, Expense Ratio 0.16%) which also has involved put buying.

XOP is structured much differently from the market cap weighted XLE which is rather heavily weighted toward XOM (15.48%) and CVX (12.64%), given that it has forty five individual holdings in the underlying index in that it follows a “modified equal weight index” methodology.

As a result, the fund has a more noticeable “lean” towards Small and Mid-Cap names than say XLE, with about 31% of the portfolio being allocated to Small Caps and about 29% to Mids. Top holdings in XOP currently are GDP (2.24%), HK (1.90%), CRK (1.63%), NFX (1.50%), and SGY (1.44%), not exactly household Oil & Gas names.

XOP is actually the fifth largest U.S. Energy equity based ETF in the U.S. marketplace, and the second heaviest traded after XLE in terms of average daily trading volume (3.3 million shares daily) and seems to be exceptionally active from time to time thanks to the liquidity and popularity of its listed options as well.