Oil Refiner Activity: An Options Gusher

By David Russell

Options activity surged in oil refiners yesterday as bulls targeted one of the market's most depressed sectors.

Volume was at least eight times greater than average in Valero Energy (VLO), Tesoro (TSO), and Western Refining (WNR). WNR's December 7.50 calls attracted the most new capital, trading 18,568 times for $0.53 to $1.15 against open interest of 2,710 contracts. The shares rallied 12 percent to $7.26, breaking out of a four-month decline that had cut their value in half.

Refiner stocks have been gaining amid signs of an improving economy, which could improve demand for products such as gasoline and diesel. Some of the companies, which tend to carry heavy debt loads, have also been the target of short sellers who are forced to buy the shares as they rise. Short interest represented 19 percent of the float in WNR and 9 percent in Sunoco on Aug. 26.

Sunoco (SUN) rose 2.61 percent to $28.73 yesterday and is up 9 percent in the last six sessions. Options traders following a strategy recommended by DRJ stood to earn more than 70 percent over the same period. (See InsideOptions)

Traders also doubled their money in Frontier Oil (FTO) by using options to leverage a 13 percent move. (See InsideOptions)

VLO is usually the only refiner to be found among the most active names in the Oil & Gas group tracked by optionMONSTER's Heat Seeker program. However, the volume yesterday in the group was so dramatic that TSO, WNR, and SUN also appeared among the top eight ranked by volume, displacing larger companies such as Chevron (CVX) and ConocoPhillips (COP).

(Chart courtesy of tradeMONSTER)

Comments

[shark89:]

Welcome to the pump and dump before qtr earnings. Days of refined supply, not just inventories are at a record high. Cheap natural gas ensures that Butane will be max blended into gasoline this winter increasing supply. The only reason crude has drawn is that there is no demand for imports. Refiners are cutting their inventories to improve their balance sheets cash position into qtr end. Even if one believes a "V" recovery, the industry is still oversupplied. People are paying thru the nose for a possible 2012 return to average margins. Its no different than the short lived AIG mania to blow the shorts up, then the longs get it when reality sets in, nice game eh?

Sep 18 01:50 PM

[BullnBear:]

WNR is a solid company with great asset allocation and market locations.

WNR, VLO, SUN, TSO, ALJ, and DK are all worth a look.

I’m long WNR and have been for quite some time.

Sep 18 11:36 PM

[Crude Oil T...:]

Refiners have done a great job this summer of keeping gas prices and inventories in a sweet spot. I think that party might be ending, but it won't last long. Indexes and equities are going to correct taking crude with it, but it will be back big. When say you?

Sep 19 09:58 AM

[The Greates...:]

And here everyone thought it was supply and demand, crude at $70 and gas with desiel both about $2.00 a gallon. All that stored oil will have to come to market sooner or later, when it does look for the bottom to drop out.

Sep 19 11:25 PM

[medallionstock:]

Cheap natural gas may be behind the push for more CNG buses in the U.S. Public Transportation System. Yahoo Finance has the details:
finance.yahoo.com/news...

Sep 22 11:52 AM