Overview: Weekly Options – Energy Select SPDR (NYSE: XLE)

Drivers are upset about prices at the pump with the national average price for gasoline near $4 per gallon. Increasing gas prices are causing financial hardships on families and many are reducing their auto trips. The impact of rising gas prices will be seen as we enter the Memorial Day weekend and the summer months.

A strategy that an options trading investor may want to consider for higher energy prices is the Weekly option in the Energy Select SPDR (NYSE: XLE). The investment seeks to replicate, net of expenses, the Energy Select Sector index which includes companies from the following industries: oil, gas and consumable fuels and energy equipment and services. Firms in the index include Exxon (NYSE: XOM), Chevron (NYSE: CVX), Schlumberger (NYSE: SLB), ConocoPhillips (NYSE: COP) and Occidental Petroleum (NYSE: OXY).

Weekly Option Strategy – Calls on XLE

With XLE trading at $74.75, an investor with a bullish outlook of rising energy prices may consider buying the XLE Weekly May 75 Call for around $0.85. If XLE trades higher than $75.85, this call has unlimited profit potential with a maximum risk of $0.85.

Weeklys – Let the Buyer Beware

Weekly options need to be watched carefully. They expire quickly and their premium disappears fast. The last day of trading for these Weeklys is next Friday May 27. If your sentiment for energy prices is bullish within the next few days, using a Weekly option could provide a great return in that time period.

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.