Options Trader Lowers the Bar for Crumbling Oil ETF

One speculator may be rolling down their September puts

Oil prices are plunging today, extending a recent slide that has the front-month crude contract down more than 8% week-to-date. Accordingly, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is 8.5% so far this week -- off 0.9% today at $24.42 -- prompting one options bear to set their sights even lower.

Taking a quick step back, XOP puts are flying off the shelves today. At last check, around 267,000 puts had been traded -- six times what's typically seen at this point, and 12 times the number of calls on the tape.

The bulk of this action has centered at the September 23 and 25 puts, where four massive blocks totaling 220,000 contracts have changed hands. Trade-Alert suggests one speculator may be rolling down their September 25 puts to the 23 strike, eyeing additional losses for the energy exchange-traded fund (ETF) over the next two months.

Widening the scope reveals near-the-money traders are notably put-skewed among options set to expire in the next three months, per XOP's gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 4.54. While that September 25 put is currently home to peak open interest of 231,388 contracts, the September 27 put is also site of heavy open interest, with roughly 87,500 contracts outstanding.

Looking closer at the charts, the shares of XOP have been sliding over the long term, down 42.5% year-over-year. More recently, the fund has been guided lower by its 40-day moving average, and a recent rejection here has the shares headed for their fourth straight loss and their lowest close since Dec. 24.