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BP plc (ADR) (BP) Expected to Hold Its Bearings

Yesterday's bulls eat up BP's in-the-money July 41 calls

by 7/11/2013 11:02 AM
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Call activity has heavily outstripped put activity in BP plc's (ADR) (NYSE:BP) options pits as of late, despite the stock's 6-month loss of 4.6%. During the past two weeks, BP speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than three calls for every put. The resultant 10-day call/put volume ratio of 3.36 ranks higher than 64% of other such readings taken throughout the past year, conveying calls have been snatched up over puts at a slightly higher-than-usual pace.

Likewise, BP sports a Schaeffer's put/call open interest ratio (SOIR) of 0.60, demonstrating calls nearly double puts among options expiring within the next three months. This ratio ranks in the 34th percentile of its annual range, further proving that BP's short-term speculators are more call-focused than usual.

This bias toward calls was evident during yesterday's session, as well, where the number of calls traded nearly quadrupled the number of puts. A fair chunk of this activity -- 3,223 contracts to be exact -- crossed at the in-the-money July 41 strike for a volume-weighted average price (VWAP) of $1.27. The majority of these contracts went off at the ask price, and open interest at the strike added 2,036 positions overnight, suggesting heavy buy-to-open activity.

Currently, BP plc (ADR) (NYSE:BP) resides at $42.31, just north of the breakeven price of $42.27 (strike price plus the VWAP). As long as the stock continues to hover above this mark through the close on July 19, when the front-month option expires, yesterday's call buyers will finish in the green. The option's present delta stands at 0.85, or 85%, representing a more than 4-in-5 chance the call will remain in the money. Still, should BP collapse below the 41 strike, the most the call buyers will lose is the initial premium paid.

Of note, BP's Schaeffer's Volatility Index (SVI) of 15% rests just 5 percentage points above its 12-month nadir. This means that BP's short-term options' prices are at a near-annual low, relatively speaking.


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