Options Traders' `Butterfly' Bets Signal Oil Rally Not Over

  • WTI crude call options volume rises to highest since March
  • About $20.5 million of July ‘butterfly’ call spreads trade

Options trading is signaling that the longest rally in U.S. crude oil since December has a few dollars to go.

Volume in West Texas Intermediate call options, which give the holder the right to buy crude in the future at a set price, surged on Tuesday to the highest since March. More than 61,000 contracts of July WTI crude $57 call options traded as of 5:19 p.m. in New York, a record high for the contract.

About half of those July $57 calls traded as part of a strategy that profits the most if prices are near that level when the options expire in June. WTI crude has risen for six straight days, the longest streak since Dec. 28, and reached the highest level in more than a month Tuesday as Saudi Arabia was said to likely support extending OPEC output cuts into the second half of the year.

More than 15,000 “butterfly” call spreads worth about $20.5 million exchanged hands in block trades, according to data compiled by Bloomberg. The profit on the deal, which includes $52, $57 and $62 call options, would shrink and potentially turn into a loss if oil keeps rising to $62. WTI for July delivery climbed 31 cents to settle at $54.11 a barrel.

Open interest, or the number of contracts outstanding, in the $52 calls shrank by 9,434 lots, while $62 call interest jumped by 16,814 contracts, or almost 14-fold, and the $57 call increased by 2,818.

— With assistance by Michael Roschnotti

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