For a long time, the trade has been to buy oil refiners and sell big oil. Now it looks like that trade could flip.
The S&P 500 was only down 0.5 percent on Monday but the VIX was higher by over 18 percent, showing that traders were exceptionally skittish after getting surprising news from Cyprus. A higher VIX means that there was increased demand for options.
(Read More: Cyprus and What It Means for the VIX)
In most names, the option trading was dominated by purchasers of out-of-the-money puts, as investors attempted to limit downside risk on long stock positions. But in ConocoPhillips, we saw traders come in and buy large quantities of out-of-the-money weekly calls to play a pop in the stock with minimal risk.
The biggest trade of the day was the purchase of 9,249 weekly 60-strike calls for $0.21, which was done with ConocoPhillips at $59.35. This trade will profit if COP is above $60.21, or 1.5 percent higher, by the close this Friday. And COP wasn't the only big oil company where we saw upside call buying. We saw similar action in names like Marathon Oil as well.
Should you think about buying big oil and selling refiners? Indeed, maybe it is time to think about taking some profit on refiners, which have hugely benefited from a widening crack spread, and look to buy big oil names.
On Monday, COP opened down 0.70 percent, and immediately began trading higher. The weekly 60-strike calls opened at $0.08, and traded as high as $0.31 during the day. This highlights the benefit of weeklies—namely, leverage. Because expiration is just days away, the options are extremely sensitive to changes in the underlying price of the stock, and can be used to gain exposure to a company without putting a lot of risk, or margin, on the table.
This trade is a momentum play betting that Monday's sell-off was overdone. The dip was immediately bought at the open yesterday, which confirms that there is money on the sidelines waiting for a buying opportunity. These calls are likely to remain active most of the week, and will likely be sold for a profit into strength in the market.
While weekly options offer an excellent risk/reward ratio, they also suffer from rapid time decay if they do not move into the money, meaning that there is substantially risk that they expire worthless. Therefore, they are best used for quick momentum plays on stocks, and should not necessarily be held to expiration.
—Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."