Options Investors Turn Bearish On Oil

Friday, 29 May 2009 | 6:01 PM ET

Oil rose to a six-month high above $66 per barrel on Friday, marking its largest monthly percentage gain in more than a decade, after new data suggested the economic downturn may be easing.

But if you think crude is marching higher, think again. Option investors are betting that it doesn't!

It seems like there’s not huge conviction in the way oil is moving, says Brian Stutland of Stutland Equities. Yes it’s moving higher but it’s not gapping higher.

Typically when oil moves higher people start to feel it in their pocketbook and fear creeps back into the market. But take a look at the Vix, it continues to fall. There's not a huge increase in volatility in the market nor is there an increase in volatility in oil.

That tells me -- options traders are betting that the next move in oil is either sideways or even lower. I think the run in oil is probably out of steam.

However it's worth noting not everyone agrees. On Fast Money's Halftime Report Dan Fitzpatrick of StockMarketMentor said patterns in the chart suggest oil goes higher -- to $75.

And Joe Terranova, arguably one of the most optimistic people on the planet, expects oil to climb merely on momentum. I understand that the fundamentals for oil are horrible but you’ve got to trade the momentum, he says.

Will Oil Run Fade?
Options pits don't show strong bets behind oil run, with Brian Stutland, Stutland Equities and the Fast Money traders.

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Trader disclosure: On May 29TH, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso Owns (AMZN), (CSCO), (RIMM), (V), (KLF); Stuart Frankel Clients Own (SUN), (YHOO), (AAPL), (AMD) ,(BAC) ,(BHI) ,(BP), (C), (COP) ,(CVX) ,(F) ,(GS) ,(HAL) ,(PFE) ,(SLB) ,(SUN) ,(USO) ,(VLO) ,(WFC) ,(USB) ,(PBR), (JPM), (LMT), (GD), (AET), (GM); Finerman's Firm Owns (MRO); Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (USO); Finerman's Firm And Finerman Own (BAC) Preferred Shares And Are Short (BAC); Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Najarian Owns (PFE); Najarian Owns (BP) Call Spread; Najarian Owns (CLF) Call Spread; Najarian Owns (FCX) Call Spread; Najarian Owns (HIG) Put Spread; Najarian Owns (XHB) Call Spread; Najarian Owns (PCU) Calls; Finerman's Firm Owns (IBB), (XBI), (CSCO), Finerman's Firm And Finerman Own (FLS); Finerman's Firm Owns (BWA) Puts

Terranova Owns (XBI), (ABT), (RIMM), (HES), (TER), (BTU), (MS), (JPM), (MS), (HES); Terranova Is Short (XOM) Call Spreads; Terranova Owns (DIS) Call Spreads: Terranova Works For (VRTS); Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO: Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV); Virtus Investment Partners Owns More Than 1% Of (ABD),(ARE),(CAL),(DLR),(EPR),(EXR),(IGE),(MEE),(DBC),(DBV),(DBA),(SKT),(UA),(CLB), (WBMD); Virtus Investment Partners Owns More Than 1% Of St Mary Land & Exploration Co; Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights

For Brian Stutland

Stutland Is Long (MRO), (GLD), (USO), (VLO)
Stutland Equities Has Options And Futures Positions In The S&P 500 And The VIX

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