NEW DIRECTIONAL PUT PLAYS
Energy SPDR ETF - XLE - close: 71.51 change: +0.03
Stop Loss: 75.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 13.3 million
Entry on July -- at $---.--
Listed on July 21, 2015
Time Frame: Exit PRIOR to September option expiration
New Positions: Yes, see below
The 2015 bounce in crude oil appears to be over. The price of crude oil was cut in half with a plunge that started in the second quarter of 2014 and didn't stop until early 2015. Oil managed a multi-week bounce off its March 2015 lows but the rally stalled in May and oil prices churned sideways for almost two months. Now the commodity has resumed its decline.
Today WTI crude oil is hovering near $50.00 a barrel, which is a three-month low. Oil consumption is rising but it's not outpacing oil production. The big drop last year was the market realizing we (temporarily) have more supply than demand.
The Iran deal over the country's nuclear program, if it doesn't get derailed again, will remove sanctions on Iran and allow the oil-producing country to sell more oil on the global market. That's more supply to a market that doesn't need it. Iran denies it but sources say the country has more than 50 million barrels of oil just sitting in oil tankers ready for transport.
Another problem for the energy sector is natural gas supplies. Last month the U.S. Energy Information Administration said natural gas inventories rose 132 billion cubic feet to 2.2 trillion cubic feet. That's more than 50% above last year's inventory levels and the largest surplus in 12 years. The Natural Gas Supply Association expects industry production to hit a new all-time record this summer.
One way to play this bearish supply/demand issue on oil and natural gas is the XLE.
The XLE is an exchange traded fund (ETF) designed to track the Energy Select Sector Index. This is a great way for investors to play the energy sector of the S&P 500 index, which includes oil, gas & consumable fuels, and energy equipment and services companies.
Top 10 Holdings (61.54% of Total Assets)
| Company || Symbol|| % Assets
| Exxon Mobil Corporation || XOM || 15.79
| Chevron Corporation || CVX ||12.46
| Schlumberger N.V. || SLB ||7.68
| Kinder Morgan, Inc || KMI ||4.48
| EOG Resources, Inc. || EOG ||3.94
| ConocoPhillips || COP ||3.76
| Williams Companies, Inc. (The) || WMB ||3.67
| Occidental Petroleum Corporation || OXY || 3.51
| Pioneer Natural Resources || PXD ||3.15
| Anadarko Petroleum Corporation || APC ||3.10
The market is well aware of the supply issues facing the energy sector and the XLE has been falling 11 out of the last 12 weeks. We don't see any catalyst that would reverse this momentum.
Currently the XLE has broken down to new multi-year lows and the nearest support levels could be down near $66 or $60. The point & figure chart is bearish and forecasting at $61.00 target.
Tonight we are suggesting a trigger to buy puts at $71.25.
Trigger @ $71.25
- Suggested Positions -
Buy the SEP $70 PUT (XLE150918P70) current ask $1.79
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike