The largest options expiry in WTI history came and went Monday without too much ado. WTI’s closing price at just below $55 per barrel means some 580,000 December put options are likely to have been exercised.
Some interesting new trends are afoot, however. Note this chart showing the increasing divergence in the net length of options versus futures held by large traders (who now appear to be net short futures).
Olivier Jakob at Petromatrix specifically notes the ongoing strong addition in call options. The concentration, he says, is around February and March at the $80 and $93.50 per barrel mark. Meanwhile, general open interest is up all round, as can be seen below.
All of this could mean a number of things. Among them, though, is the idea that producers (and large traders who are naturally long) are actively shorting futures and buying calls to create synthetic long puts on a not insubstantial scale.
Why would a producer create a synthetic long put rather than just buy a traditional put? It could be down to liquidity, perhaps because calls are easier to come by then puts.
The net effect is the same, however – they are heavily hedging themselves against ongoing weakness in the oil price.