BP - Vol Spiking, Possible Trades

Discussion in 'Options' started by livevol_ophir, Jun 9, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    BP is trading 30.35, down 12.5% with IV30&#8482 up 57.4%.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TA_WpP8jIMI/AAAAAAAAC4Y/bTcHCL1xgx4/s1600/bp_summary.gif">

    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 (<a href="http://livevol.blogspot.com/2010/06/bp.html">in the article</a>).

    I've included the tick chart. 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).

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TA_Xrqpha4I/AAAAAAAAC5A/pORKoXAt54M/s1600/bp_tick.gif">

    The Options Tab (<a href="http://livevol.blogspot.com/2010/06/bp.html">in the article</a>) 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 (<a href="http://livevol.blogspot.com/2010/06/bp.html">in the article</a>) 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 (<a href="http://livevol.blogspot.com/2010/06/bp.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Here's a technical analysis. Umm, it's down a lot... Note the IV30&#8482 spike recently way past the historical vol.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. 1) Are funds wanting to force the company into bankruptcy? :eek:
    2) Does the stock tend to make a short-term bottom on large volume spikes? :confused:
  3. livevol_ophir

    livevol_ophir ET Sponsor

    1) I guess it depends on the fund :cool:

    2) That's kinda technical analysis"y." Possibly true. Certainly big news is met with high volume.
  4. spindr0


    I know that you know this but that's only on an expiration basis...

    Several pts lower, the 25p's delta will exceed 1/2 that of the 30p. So if BP continues down immediately, this spread will be a loser long before 20. If it falls below 20 before expiration, one will have never had the opportunity to bail without a loss.
  5. livevol_ophir

    livevol_ophir ET Sponsor

    All true spin.