Tuesday, June 29, 2010

Plains Exploration (PXP) - Risk Reversal Gets Long US Oil Explorer

PXP closed at $20.95 yesterday down $0.73 with IV30™ up 2.85 points. The LIVEVOL™ Pro Summary is below.

PXP is an independent oil and gas company engaged in the activities of acquiring, developing, exploring and producing oil and gas properties primarily in the United States.

This is the second recent blog I posted on a long position in an Oil Explorer. Noble (NE) - July Call Buyer Pushes Vol; Click to Read

The company traded over 32,000 options on total daily average option volume of just 7,053. 20,000 contracts went up in one position; a Nov 17.5/22.5 risk reversal (buy calls/sell puts). The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the both the calls and the puts were opening (trade size >> OI).

I don't see a position with OI > than 1,257 in Nov, so the 10,000 on both those lines is quite substantial. In the front three months, I don't see any OI even at 5,000 (Aug 22 puts have 4,815 open positions). The stock averages 3.89 million shares traded a day, and yesterday only 2.2 million traded. It doesn't look like these were done with stock; i.e. they kept their delta ~72 delta long.

Trade Stats
Sell 10,000 Nov 17.5 puts @ $1.30
Buy 10,000 Nov 22.5 calls for $2.45
Debit = $2.45 - $1.30 = $1.15
Total Cost = 10,000 *100 * ($1.15) = $1,150,000
Break Even (at expo) = $22.5 + $1.15 = $23.65

The Skew Tab snap (click to enlarge) illustrates the vols by month by strike.

As of the close, the skew in Nov looked normal, as do the other months. If anything, July looks sort of bid to the downside.

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.

We can see the stock dropped pertty hard from ~$35 to it's current level since early May. The 52 wk range is [$19.28,$36.60]. The trade makes money above $23.65.

This is trade analysis, not a recommendation.

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