Hey trader,
Supertankers took hits in the Persian Gulf. Oil is climbing.
XLE gapped up at the open exactly the way you’d expect. Then it faded off the high and parked at 64.50.
The story writes itself from there.
Oil goes up. Energy follows.
I went to the block prints instead of stopping there.
Institutions bought calls on the XLE energy ETF at 66 today, at 63.50, and at 63, which is not a group of people agreeing on direction (the XLE currently trades at $64.50).
Where they do agree is the boundary.
There are 12,000 contracts sitting at 63 for Friday’s expiration, with another wall waiting at 65 overhead.
XLE is fenced in on both sides. That fence is worth real money before the week is out.
What do these institutions see that has them buying both edges of the same box?
Let me walk you through where that question took me, and the spread I’m using to play it.
The prints don’t agree on direction, and that’s the point
Here’s what actually hit the Console today. At the 66 strike for Friday, a block of calls filled at $0.56, all at the same moment, all on the buy side.
Then they came for the downside. Someone bought 2,000 contracts at the 63 strike in a single print.
At 63.50, roughly 5,600 contracts got picked up, mostly as a sweep. A sweep means they chopped the order into pieces and fired them at once to get filled.
Different institutions, opposite edges, same session.
I stopped looking for a direction after that. There isn’t one to find.
What I can tell you is what the dealer inherited. Every one of those contracts got sold to someone, which leaves the dealer short calls and short puts.
Short options mean negative gamma. Essentially, the dealer has to buy into strength and sell into weakness, so any move gets pushed along rather than absorbed.
That’s the environment I want. Price accelerates instead of grinding.
Bullish above, bearish below
I helped an author with a book on dark pools about nine years ago. She used a phrase I’ve never stopped using.
Bullish above and bearish below.
That’s the whole read on XLE right now. The levels do the talking.
Above, today’s buying sits at 66. The existing open interest tells a different story, and it’s clustered at 65.
I trust the standing interest over the fresh print here. The real upside break point is 65, not 66.
Break 65 and the next stop is 67.50. That’s the dealer convexity move, where hedging pressure reinforces the push higher.
Below, Friday’s expiration holds 12,000 contracts at 63. Above that, there’s very little in the way except a small pocket at 65.
Look out to the September monthly and put side interest starts building underneath 63. There’s a minor sticking point at 62.50 on the way down.
The spread I’m using
XLE is at 64.50 as I write this. That puts me right up against the upper wall with the lower wall clear below.
I’m playing the skewed side. Down to 63.
- Setup: Buy the 64 put, sell the 62 put for Friday’s expiration. A vertical spread just means I own one strike and finance it by selling a lower one, which caps the cost.
- Cost: About $0.38 right now.
- Target: 63, the lower wall. That spread is selling for roughly a dollar at that level.
- Edge: Roughly $0.62 of gain on a $0.38 debit. Call it 150% if XLE reaches 63 by Wednesday or Friday.
If you’d rather give the trade room, there’s a September expiration version. A 64 vertical one month forward runs about 60 cents with a break even near 62.90.
Reach 62.50 on that one and you’re out for about 70%.
For anyone leaning bullish on energy, my advice is to wait. Let 65 break first.
I’d Rather Start Upstream
Start with a chart and you’re standing downstream. You can see the water moving. You can’t see the fork in the river or the rapids waiting around the bend.
The prints are upstream. They’re the tail that wags the dog, and everything on your chart is the dog.
This morning the Console pre-screened 655 candidates down to 19 block trades in a single click. Every one carried at least 1,000 contracts bought as a block or a sweep.
That’s not retail. That’s institutional money committing to a strike, a target, and a timeframe.
Yesterday it flagged short-dated institutional call buying in Walmart before the stock told anyone anything. I walked members through the 106 target, and plenty of them closed for better than 100%. IDT booked 117%.
The KRE spread I walked through on Friday went from about 60 cents to 90 cents while we waited.
Here’s what you get when you’re in the room with me.
- Live sessions where I pull up the Console and translate the day’s prints into levels, targets, and timeframes
- The prints I’m watching, sent out most days, including the ones that take real digging to surface
- The full library, including the candlestick book I wrote, free to download
Identify the print. Then translate it. That’s the entire job, and we do it together every session.
Brandon Chapman, CMT
Creator of Ghost Prints
