Many oil companies have held up surprisingly well, despite the falling price of crude — but options traders apparently are not optimistic about the future of Chevron.
Some 3,700 of the December 65 puts have traded aggressively on the offer for CVX, according to OptionMonster's Heat Seeker system, which tracks unusual options activity. Traders have been buying these puts in blocks ranging from 785 contracts to 1,666 contracts. Those levels clearly indicate that this is professional paper, not small retail orders.
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Shares of Chevron, Exxon Mobil and other oil giants have been volatile but have still performed far better than crude oil futures, which are down 48 percent over the past three months. Two days ago, Chevron CEO David O'Reilly said he would not issue estimates for the next fiscal year, but insisted that the plunge in oil prices would not force Chevron to scale back.
I would take O'Reilly on his word, but the put action indicates that there are a host of folks who aren't buying what he's selling. So we would consider buying the December 65 puts for $3.70 and selling the December 60 puts for $2.40.
That's paying just $1.30 for that $5 bear put spread. We'd also consider a stop-loss at $0.70.
Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.
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