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.
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.
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.