Bearishness Reigns in Energy Giant: Options Recap


Energy’s the weakest sector over the long run, and options traders are sticking with that trend.

Check out this giant bearish trade in oil-field servicing company Halliburton (HAL):

  • A block of 58,000 22-February 27.50 puts was bought for $1.45.
  • A block of 58,000 22-February 28.50 calls was sold for $1.56.
  • That translates into a net credit of $0.11. It was the largest transaction in the entire options market so far today.

Owning puts fixes the price where a security can be sold, so they tend to make money to the downside. Writing calls generates income and simulates being short the stock. (See our Knowledge Center.)

The investor probably owns at least 5.8 million HAL shares and is looking to protect against a drop. (If not, there’s significant upside risk.) He or she will be forced to exit their position if it closes above $28.50 on expiration. They also have a floor at $27.50 if the stock breaks under that level. The strategy will expire worthless between those two prices.

Halliburton (HAL) chart with 50-day moving average.

HAL rose 4.53 percent to $28.36 but has lost more than 40 percent of its value in the last year. The culprit? A glut of crude oil as production surges and global economic growth eases. Today, for example, the Energy Department reported stable inventories despite analysts predicting a small decline.

The bearish trade pushed today’s options volume in HAL to 4 times the monthly average. It’s also the busiest session in the name in more than two years, according to TradeStation’s historical data.

Disclosure: This post is intended for educational purposes only. Options trading may not be suitable to all investors.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.