Friday’s abbreviated session didn’t do longs many favors in sectors such as Energy equity. XLE (Energy) was trounced on the heels of another downdraft in Crude Oil and Energy prices on Friday, on huge volume.
We saw activity in once well out of the money January 75 puts (XLE closed with a $79 handle on Friday after topping around $89 just four trading days prior. Interestingly, the sector has seen net inflows in recent days to the tune of around $1 billion, but this could change at any moment given the jolts of volatility here.
In a related punished ETF, XOP (Oil & Gas Exploration/Production) there was some interest in January 60 calls on Friday, which are now nearly $10 out of the money (a strike that was well in the money
just early last week). XOP like FRAK (Market Vectors Unconventional Oil & Gas) are some of the more interesting “higher beta” segments of the greater Energy Equity space that should be watched very closely from now until year end given the volatility and interest in the space.
Elsewhere in Energy related trading, USO (U.S. Oil) April 25 puts traded in decent size on Friday as well, and we saw interest in the MLP space presumably on the greater Oil overhang in AMLP (Alerian MLP,
January 17 puts traded in decent size).
Portfolio managers with positions in the greater Energy equity space likely felt “out of the woods” at one time or another last week only to be disappointed by OPEC’s lack of action and now are looking at a potentially volatile December to reconcile the year end returns (or lack of) in the sector.
There are a bevy of ETF alternatives in this sector, ranging from strategy with specific sub-sectors within Energy Production, Exploration, Equipment and Services, as well as those related sub-categories such as MLP’s for instance, that may be just as sensitive to large moves in underlying Energy futures prices.