ETF Trends
ETF Trends

Today we examine recent options activity in the Oil & Gas Exploration & Production space via trading in XOP (SPDR Oil & Gas Exploration & Production, Expense Ratio 0.35%).

The theme recently has been near or at the money near term put buying, watching the sector fall quickly and notably to new recent lows, and then we see more put buying at the next “level down.” For example, October 60 puts are now trading in XOP and these are levels in the sector that have not been seen since the fall of 2013.

With pressure across energy commodity prices again this morning (Crude Oil is down about another 1%), Energy equities are off again a bit today as well. Interestingly, the fall in the sector is before core earnings reporting season for most of the names in the Energy sector.

XOP as an ETF vehicle, and we should mention that options trade quite regularly in this product, several times a year now in good size. This is interesting because it is fair to say those whom use XOP in order to express their bull or bear sentiments in the sector are likely not “fundamental” traders, but perhaps technically driven and/or more associated with sector correlation and relative strength versus other sectors.

XOP is a modified equal weight index, which means that it resets to equal-weighted periodically and then the holdings may run to some degree (some higher and some lower), again to be reset back to equal. Thus, there is really no clear “name” bias at any point in the portfolio, nor weightings dominated by one or a handful of names.

Also, only about 20% of the portfolio in XOP consists of mega and large cap names, with notable concentration in Mids, Smalls, and even Microcaps. Top holdings are currently ATHL (1.54%), MTDR (1.28%), RSPP (1.24%), BBG (1.23%) and AXAS (1.22%).

From a flows standpoint, XOP has seen about 10% of the AUM in the fund leave recently (AUM base approximately $1.06 billion), but it is not alone as institutional managers clearly seem to be trimming their holdings in Energy names recently.

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