Sponsored By:

Energy Sector SPDR (XLE)

"Sell to Open" the XLE March 40 Puts (JSKON) for $1.26 or more

Dear Fellow Options Traders,

The XLE is the energy select sector SPDR Exchange-Traded Fund (ETF). The price of oil appears to have stabilized after plunging from roughly $150 per barrel to about $30 per barrel.

World demand responded incredibly quickly to peak oil prices by falling off at an unexpectedly rapid pace. The XLE, from its peak in 2008, has been cut in half. It is interesting to note that through all of the market turbulence since October 2008, the low in XLE is slightly below $40. In other words, $40 has been a very powerful support price for this ETF.

While he broader market continues to have a bearish bias and it is possible that oil could plunge again to new lows, we think a dramatic change in oil prices during the next month is unlikely. We suspect that, if anything, oil will be about the same price as today in a month and the XLE will trade flat to up.

Given that the volatility priced into the XLE is still very elevated, we believe it is a good bet to sell to open the XLE March 40 Puts (JSKON) for $1.26 or more and take advantage of this incredible line of support.

There are currently two ticker symbols for the XLE March 40 Puts. Be sure to sell the puts with the ticker JSKON, as they have a higher bid price than the other option and expire on March 31, as opposed to standard option expiration on March 20.

Nick Atkeson and Andrew Houghton