A Historic Day for Crude

4/20 typically marks a day of celebration for a certain subset of our audience. However, today also marked a historic day for crude oil traders. We saw price levels emerge that we have not seen since the primordial days of the WTI futures contract. If that wasn’t enough, we even saw the front month WTI contract trend into negative territory on the day. The unrelenting selling pressure in the May contract reflects the skyrocketing storage costs in the crude oil market. Of course, that storage demand is driven by the overall demand annihilation in the crude oil market. The Coronavirus pandemic is still raging across the globe, leaving flights grounded and traffic halted in its wake. The current estimates put the global impact of the pandemic at a staggering  29M BPD. Even those with a cursory understanding of Econ 101 know that the recent approx. 10M BPD cuts from OPEC will barely make a dent in that equation. With so much bearish news hitting the tape, you’d expect to see a flood of put options trading in popular crude oil proxies like USO. But that was hardly the case. In fact, a quick glance at today’s volume reveals that calls actually outnumbered puts by nearly 2X on the day. Let’s take a look:

Total USO Options Volume 4/20/20

  • Calls: 2.32M
  • Puts: 1.19M

Of course, call activity does not automatically equate to bullish activity. We expect to see aggressive overwriting on days like this and we certainly saw that today. However, when the underlying sentiment trends in one direction so aggressively, the overall options activity tends to follow suit. Which is what makes today’s options activity so surprising. In fact, the #1 overall trade in USO options came on the call side of the ledger:

Most-Active USO Contract 4/20/20

  • May1 4.5 CALL, Total volume: 126,700 contracts

It’s an interesting trend and one to keep an eye on in the coming trading sessions. In the meantime – stay small, stay nimble and, most importantly, stay safe out there!

Data courtesy of Trade Alert