BP - Is Reckoning Day Upon Us?

Discussion in 'Options' started by livevol_ophir, Jun 24, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    BP is trading $29.18, down 1.6% with IV30™ up 8.4%.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TCN6AHg-ilI/AAAAAAAADLI/Lr4lmEg8uT8/s1600/bp_summary_6-24-2010.gif">

    Note that the stock is on the verge of touching it's 52 wk low. The stock stats are included (<a href="http://livevol.blogspot.com/2010/06/bp_24.html">in the article</a>).

    The two largest trades yesterday are bets that BP goes through that low and then some. The day's biggest trades snap is included (<a href="http://livevol.blogspot.com/2010/06/bp_24.html">in the article</a>).

    <b>Trade Stats</b>
    Sell 10,000 Jan'12 25 calls @ $10.80
    Buy 4,000 Jan'12 32.5 calls for $7.45
    Buy 3,300 Jan'12 30 calls for $8.55
    Buy 6,665 Aug 20 puts for $0.82
    Sell 6,665 Aug 10 puts @ $0.12

    The first is a call spread sale (which is a put spread purchase) on ratio. The PnL chart is included (<a href="http://livevol.blogspot.com/2010/06/bp_24.html">in the article</a>).

    At expiration, the max gain is below $25 for nearly $5,000,000. If the stock rallies to it's high of the year ($62.38) it loses $9,744,100.

    The second is a straight put spread purchase betting the stock goes below $20. Both bets look for the stock well below it's year low.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/bp_24.html">in the article</a>) illustrates the vols by month by strike.

    It actually has a very pretty skew. What's odd is that the back months (Jan '11 and Jan '12) maintain the shape pretty well. Usually back months show much flatter skews.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/06/bp_24.html">in the article</a>). 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.

    A picture's worth 1,000 words. You can see the "line in the sand." Is BP going to fall apart (further)? In the short term, it seems like reckoning day will be soon upon us.

    The IV30™ 52 wk. range is [20.05, 117.27]. Note that while the stock is near it's low, the IV30™ is not near its high.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. livevol_ophir

    livevol_ophir ET Sponsor

    There it goes... bye BP...
  3. !.....Buy BP? Are you doing anything in the October 2.5 puts? :D
  4. livevol_ophir

    livevol_ophir ET Sponsor

    That would be a great typo.. Buy BP.. I mean Bye BP!... :eek:
  5. livevol-

    For the record i was following your picks and there is no edge in what you do. BP went down because the market went down big too. Look at your other pick of COCO last week that crashed and you were calling for a rally... it even went down when market rallied last week. I see no edge in reading the options market to predict future price direction.
  6. livevol_ophir

    livevol_ophir ET Sponsor

    A couple of things:

    1) I don't call for anything. My job is simply to pick two stories a day where there is high option volume. I try to choose stories where the volume is opening and generally one sided (whether that be direction or vol). At times I am asked to do more broad stories. For example, in the magazine "Sentiment" (that's Bernie Schaeffer's mag) I will be writing abut volatility as it pertains to option trading. Issue out in Oct I believe.

    2) Even if I were trying to predict moves, you reading 2 blogs is a small sample wouldn't you say? I mean, if both worked would you have said there was edge? I hope not...
  7. There is no proof that reading into what option traders are doing provides any kind of edge. Sometimes whoever is trading is hedging and sometimes they are playing for a directional move.. etc... just because a lot of people are betting on one outcome does not have any type of edge.
  8. livevol_ophir

    livevol_ophir ET Sponsor

    I agree with everything you said. Taken further, there is probably the most edge when there is one sided trading and people are doing it fast and furious at bad (read wide markets) prices.
  9. What research have you done to prove this?

    Here's what you did. You picked one example and said it didn't work. Quite honestly, and this is a small sample.... if 6 out of 10 worked. That would be an edge. Meaning 4 would fail. Not just 1.

    Moreover, this is just another tool to hopefully get the odds in your favor. If you don't understand that then we need to start from scratch.
  10. livevol_ophir

    livevol_ophir ET Sponsor

    You can actually go further. If 9/10 lose 1%, and 1/10 makes 300%, I'd call that edge. A lot actually...

    Even order flow "believers" expect to lose more <b>times</b> than they win, but expect a higher total return.
    #10     Jun 24, 2010