Wednesday, June 9, 2010

BP Plc (BP) - Vol Spiking, Stock Dropping, Possible Trades

BP is trading 30.35, down 12.5% with IV30™ up 57.4%. The LIVEVOL™ Pro Summary is below.

The company has traded over 481,000 options on total daily average option volume of just 77,697. The largest trade was the July 32 puts 20,000x @ $2.45 just as the stock started its collapse today (I can't tell what side these puts were). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

I've included the tick chart (stock on top, vol on bottom). I've also circled when the 20,000 July puts traded. Right as the stock was dipping (again, I'm not sure if these were bot or sld - actually feels like sld).

The Options Tab (click to enlarge) illustrates that the June 30 and July 32 puts are the most active. The trade volume in the July 32 puts is >> than OI, so those are opening trades. A bunch of the June 30 puts are also opening (trade size > OI), but we won't know how many until tomorrow.

Let's look at the Skew Tab snap (click to enlarge) before turning to trades.

You can see a rather pretty skew to the downside - which isn't surprising. The front month upside skew is bid also though. It's expensive (ish) to buy upside as well. The options market is pricing in movement.

From the top of the Options Tab we can see how high vol has jumped today in June and July. The front ATM straddle is priced @ ~$4.92 fair value. Call it $5 for ease of computations. If you buy the straddle, BP has to move above $35 or below $25 in a week + 1 day. Alternatively, a sale means you need BP to stay in (25,35) for the next six trading days. Considering it's moved $4.33 today alone, I wouldn't
call that a slam dunk.

If you're bearish you could do a Jun 30/25 1x2 put spread. Buy Jun 30 puts sell 2 Jun 25 puts. That looks like it would cost ~$0.20. Of course, the spread starts to lose below $20.

On the other side you can also take advantage of some skew. The June 32/34 call spread 1x2 can be done for a credit. So if the stock stays <= $36 it's a winner. Of course, if BP rips to $45, $0.20 credit ain't gonna help much, that one will hurt.

Also, if you think the news could continue past June, a calendar (long July short June) could work. i.e. Sell ATM straddle in June, Buy it in July. That's 19 vol points cheaper in July.

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue). The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

Here's a technical analysis. Umm, it's down a lot... Note the IV30™ spike recently way past the historical vol.

This is trade analysis, not a recommendation.

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