Energy Is Crushing the Market in 2021. Here Are the Top Stocks for Options Traders


Energy stocks are having their best run in years as global economies reopen from the coronavirus pandemic.

The SPDR Energy ETF (XLE) is in the midst of its fourth straight positive month, its longest winning streak since June 2014. The fund has appreciated 53 percent since the end of October, putting it on pace for its best rolling four month gain since launching in 1999.

It’s a big change from recent years. Even before coronavirus slammed crude-oil prices by halting travel, XLE was consistently among the worst performers in the market. Its problems were excess supply from U.S. shale drillers and tepid demand.

The situation has turned on its head as OPEC and Russia keep a lid on supply and coronavirus inoculation spreads. Some hedge funds have positioned for the rally in fossil fuels to continue. If they’re correct, it could be bullish for the oil and gas firms held by XLE.

Ways To Invest in Crude Oil Stocks

Some investors may have forgotten about oil and gas companies because they have struggled for so long. This post will review a list of key stocks in the energy industry.

It’s important to understand that energy stocks are highly correlated to each other and sentiment toward crude oil. While individual companies may occasionally move on their own news, they mostly follow the broader sector. Therefore investors should know the important events to monitor. These include:

  • Inventory data helps investors know when there’s too much oil (bearish) or too little (bullish). It’s usually released by the U.S. Energy Department on Wednesday mornings.
  • OPEC meetings can impact how much oil countries like Saudi Arabia supply to the market.
  • Economic data can impact oil because stronger growth typically increases demand for energy and travel. Weak economic results can have the opposite effect.

Top Energy Stocks

Because they’re highly correlated, investors may want to consider exchange-traded funds (ETFs) tracking a basket of oil stocks. They may also want to focus on companies with heavy options activity because they may have better liquidity. Here are the 10 top energy stocks and ETFs in the last month, ranked by call and put volume:

SecurityAvg Options
SPDR Energy ETF (XLE)264,000ETF tracking producers, servicers, refiners and pipelines.
Exxon Mobil (XOM)213,000Oil & gas production, refining
Occidental Petroleum (OXY)74,000Oil & gas producer
Petrobras (PBR)57,000Brazilian oil & gas producer
BP (BP)51,000Oil & gas production, refining
Transocean (RIG)45,500Offshore oil drilling services
Marathon Oil (MRO)40,000Oil & gas production
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)40,000ETF mostly tracking oil producers such as MRO
U.S. Oil Fund (USO)37,500ETF tracking the physical price of oil
Chevron (CVX)30,000Oil & gas production, refining

Is Oil a Good Investment?

A few things explain the current rotation to energy stocks and crude oil. First is limited supply thanks to “OPEC+” (includes Russia) limiting supply.

Second is the potential for a surge in travel if the coronavirus pandemic eases and vaccines spread. Data from the Centers for Disease Control & Prevention (CDC) showed fewer than 87,000 new cases on Monday. It was the lowest reading since October 28. Infection rates are down about 50 percent in the last month.

Investors considering oil and gas stocks should weigh how they’re impacted by these factors. They should also consider how recent trends have moved away from fossil-fuel companies in favor of clean energy like solar power.

In conclusion, energy stocks face long-term supply gluts and a shift toward environmentally friendly alternatives. However they’re having a strong counter-trend rally after years of weakness. This may create opportunities for the short-term, a condition well-suited for using options.

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