PXP, NE: Options Action Gets Long US Oil Explorers

Discussion in 'Options' started by livevol_ophir, Jun 29, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    PXP closed at $20.95 yesterday down $0.73 with IV30™ up 2.85 points.

    <img src="http://1.bp.blogspot.com/_hMry1m7UF10/TCn3O6imO2I/AAAAAAAADPg/5VbDOTT9pf4/s1600/pxp_summary.gif">

    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. <a href="http://livevol.blogspot.com/2010/06/ne.html">Noble (NE) - July Call Buyer Pushes Vol; <b>Click to Read</b></a>

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

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

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

    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.

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

    livevol_ophir ET Sponsor

    NE is up 3% today.