Traders were placing wagers Thursday on more weakness in energy-sector exchange traded funds (ETFs), which have pulled back this week along with oil prices.
“We point out heavy put activity in Energy Select Sector SPDR Fund (NYSEArca: XLE) this morning, coinciding with the recent sell-off in the sector,” Street One Financial analysts said in a note Thursday.
“There has been a notable pick up in volume in Direxion Daily Energy Bear 3x Shares (NYSEArca: ERY) as well, with the ETF trading several million shares on a few occasions already this week,” they added. “Similar to the sentiment of the XLE put buyers, buyers of ERY may be playing a short-term reversal in XLE as well and seeking short exposure in the sector.”
Energy ETFs have taken a beating this week as the decline in oil futures has influenced markets and the direction of the S&P 500. [Energy Sector ETF Falls 3% as Oil Routed.]
Meanwhile, leveraged and inverse energy ETFs have experienced even bigger swings. [Direxion 300% Leveraged Energy ETFs See Big Moves, Trading Volume.]
Energy Select Sector SPDR Fund is most heavily weighted in Exxon Mobile Corp. (NYSE: XOM) at 17.2% and Chevron (NYSE: CVX) at 13.4%. The expense ratio is 0.21%. [Japan’s Impact on Energy ETFs.]
Other energy ETFs include:
- PowerShares DB Oil (NYSEArca: DBO): To play energy in the short term, futures-based ETFs such as DBO will get the job done. While these funds aren’t intended to track the spot price of oil, they’ll often correlate better than equity-based funds. Concerns of contango are never far from these funds, however, though DBO’s contract roll strategy seeks to mitigate the negative effects of the phenomenon.
- SPDR S&P Oil & Gas E&P (NYSEArca: XOP): Oil companies have been notching record-breaking profits for the last several years. In the last six months alone, the ETF has returned more than 50%. The other benefit of an equity-based oil fund is that contango isn’t a factor and tricky tax issues are avoided.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.