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The shares of BP plc (ADR) (NYSE:BP- 40.86) are bucking the broad-market trend lower today, and it appears the options crowd is gambling on even more short-term upside. So far, the oil concern has seen roughly 16,000 calls cross the tape -- about twice its average intraday call volume, and nearly three times the number of BP puts exchanged.
Most active has been the November 41 call, which has seen more than 3,200 contracts change hands. The majority of the calls traded at the ask price, and implied volatility on the soon-to-expire option has jumped 1.5 percentage points, hinting at buy-to-open activity. By purchasing the calls to open, the buyers are betting on BP to surmount the $41 level by tomorrow's close, when November-dated options expire. More specifically, the calls traded at a volume-weighted average price (VWAP) of $0.22, indicating a breakeven level of $41.22 (strike plus average premium paid) for the buyers.
In the same vein, other option bulls are allowing another week to let their predictions pan out. So far, the stock's weekly 40.50-strike call has seen nearly 3,100 contracts change hands at a VWAP of $0.81. Volume has exceeded open interest at the strike, and most of the calls crossed at the ask price, once again hinting at buy-to-open action. By purchasing the calls to open, the buyers will make money if BP topples the $41.31 level by Friday, Nov. 23, when the weekly options expire. However, even if the stock backpedals next week, the most the buyers can lose is capped at the initial premium paid for the calls.
As alluded to earlier, the shares of BP are muscling higher today, after the company reportedly settled criminal and other claims with U.S. agencies over the Deepwater Horizon disaster of 2010. While the commodity concern is said to have agreed to the largest settlement in U.S. criminal history -- around $3 billion to $5 billion -- shareholders appear relieved to finally have a resolution. An official announcement is expected later today, according to the Houston Chronicle.
Even before the news, however, option traders were upping the bullish ante. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), investors bought to open nearly four BP calls for every put during the past two weeks. In fact, the stock's 10-day call/put volume ratio of 3.93 ranks in the 81st percentile of its annual range, pointing to a healthier-than-usual appetite for long calls of late.