Block Trade Analysis – Long Dated USO Put Spread

When I arrived in NY Thursday late Thursday night I ended up with a cab driver who sounded just like Joe Pesci. In fact when he started talking to me I thought it was coming from the video screen in the back seat so I leaned forward to mute the noise. However, the noise never ended…

He asked what I do for a living and when options came up his very excited response was, “I want to buy oil options, it’s going to move and I want to know how to make some money when it starts to go back up.” Luckily traffic wasn’t so bad and it was a short cab ride, but his voice jumped back in my head when I was looking over block trades from Thursday. At least one trader disagrees with the cab driver that sounds like the guy that always seems to meet his doom in gangster movies.

On Thursday someone came into the market and bought 13,000 USO Jun 17 Puts for 1.45 and sold 13,000 USO Jun 15 Puts at 0.72 for a net cost of 0.73. This trade was executed late in the day when USO was around 17.40. The goal, if held to expiration, is for USO to be under 15.00 at June expiration as can been seen in the payoff diagram below.

USO POThis big trader seems to disagree with my talkative cabbie friend, but that is what makes a market, people that have differing opinions expressing their outlook by putting on a trade. As for the put spread buyer, so far so good as USO was off 0.64 to 16.80 today. The break-even level for the trade is 16.27 or 0.53 lower than current levels.