Dec. 11 (Bloomberg) — Options traders are signaling energy companies have become too cheap to pass up, even as they build up protection against a further drop in oil prices.

A collapse in global demand means oil may have more to fall, and hedging costs on an exchange-traded fund tracking crude climbed to the highest levels since June 2012. Yet wagers on the Energy Select Sector SPDR Fund haven’t kept up: They’re about 19 percent cheaper and reached a two-year low versus the United States Oil Fund LP, data compiled by Bloomberg show.

After a 28 percent slump in valuations, energy companies are becoming too attractive to ignore. Oil executives have been snapping up shares in an insider-buying spree, betting that stocks including Transocean Ltd. Chesapeake Energy Corp. and Diamond Offshore Drilling Inc. have fallen too far.

“Crude oil futures could go a lot lower, but it wouldn’t necessarily drag down some of these companies with it,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut, said in by phone. “There is a value to stocks, where that kind of argument is void in the crude futures market.”

Brent crude slipped below $65 a barrel yesterday for the first time since 2009 after OPEC said it expects next year to see the weakest demand for its crude in 12 years. A U.S. shale boom combined with weakening global demand has sent oil tumbling as much as 45 percent from a high in June.

Implied Volatility

Implied volatility, a measure of demand for protection against stock swings, rose to a two-year high of 36.5 yesterday for the oil ETF, three-month data compiled by Bloomberg show. Last month, the measure for the energy-stock fund fell to 0.65 times that of the fund tracking the commodity.

“We’ve upgraded this sector because it has fallen a lot,” said Didier Duret, who helps oversee 188 billion euros ($234 billion) as chief investment officer of ABN Amro Bank NV’s wealth-management unit. His firm bought shares of Kinder Morgan Inc. in November. “Demand for pipeline-infrastructure transportation is rather inelastic to the oil price.”

Since a high in June, the valuation for energy companies in the Standard & Poor’s 500 Index has fallen to 12.4 times earnings, data compiled by Bloomberg show. That’s 31 percent lower than the broader gauge’s price-earnings ratio of 17.9. To Patrick Moonen of ING Investment Management, that doesn’t mean it’s a reason to buy. Investors still need to consider the potential drop in earnings, the risk of dividend cuts and net debt-to-equity ratios deteriorating, he said.

Value Trap

“This may turn out to be a value trap,” said Moonen, who helps oversee $241 billion as a senior strategist at ING. “We implemented an underweight in energy stocks immediately after the OPEC meeting, and we intend to stick to it. It is hard to imagine the energy sector to outperform as long as oil prices do not stabilize.”

Analysts have already slashed the industry’s profit projections for this quarter. Earnings at energy companies in the S&P 500 will probably fall 15 percent, according to a Bloomberg survey of analysts from Dec. 5. In a Nov. 28 poll, they had forecast an 11 percent drop.

Traders own 38 percent more bearish options in the oil ETF than bullish ones, sending the put-call ratio near the highest level since July. For the SPDR fund, it’s near a nine-month low. Hedges in the product tracking crude have boosted the Chicago Board Options Exchange’s Oil ETF Volatility Index to the highest in more than two years.

The CBOE Volatility Index of S&P 500 options plunged 13 percent to 16.10 at 10:28 a.m. in New York.

“Professional investors are trying to bottom-pick the energy sector through single-stock and ETF options,” Neil Azous, founder of Stamford, Connecticut-based research firm Rareview Macro LLC, said in a phone interview. “They’re buying what they perceive as value in a defined risk profile through the options market given the unknown floor in crude oil prices.”

To contact the reporters on this story: Callie Bost in New York at cbost2@bloomberg.net ; Inyoung Hwang in London at ihwang7@bloomberg.net ; Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net ; Cecile Vannucci at cvannucci1@bloomberg.net Trista Kelley