After a significant rally in the energy sector, options traders are turning bearish, pressuring the largest exploration and production-focused exchange traded fund.
The SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) dipped 1.8% Wednesday, trading around $70.6 per share. XOP touched a record high of $73.74 on Oct. 21.
One trader dumped 10,000 December $77 strike calls on XOP in exchange for 10,000 December $65 to $70 put spreads, Reuters reports.
The strike price, or exercise price, on the option represents the amount of profit per share gained on the sale of the option.
WhatsTrading options strategist Frederic Ruffy points out that new entrants are also betting against XOP and that bearish trading also occurred earlier this month.
“Some investors are possibly looking for a pullback in the sector after XOP rallied 30 percent year-to-date,” Ruffy said in the article.