How Options Traders Profited Big Off the Energy Sector's Decline

Subscribers to Schaeffer's Weekend Trader service recently doubled their money on VanEck Vectors Oil Services ETF (OIH) July 32 puts. Below, we'll break down how OIH landed on our bearish radar, and how the options trade played out. 

We initially recommended OIH puts back on Monday, April 17, with the exchange-traded fund (ETF) down roughly 10% year-to-date. It had just retested and failed to overtake a trendline connecting higher lows since early 2016, and was bumping against familiar resistance at the $31 level. Plus, sector bellwether Halliburton was floundering on the charts, even as crude futures continued to rally. 

Our trade recommendation also followed a proclamation from President Trump that the U.S. dollar was "too strong." On the surface, this should have been good news for oil stocks, but it failed to provide a lift for the energy sector -- possibly suggesting hope for continued production cuts was already priced in. We also noted a major drop in U.S. oil and gas rigs, according to data from Baker Hughes, and anticipated the focus could shift from global production cuts to oversupply in the U.S.

As expected, VanEck Vectors Oil Services ETF's downtrend continued after entering our trade, as the energy sector continued to suffer. We finally closed our options trade on May 30, allowing traders to land a 103% profit.