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Apache Corporation (APA) Put Options Pop Amid Occidental M&A Rumors

Is Occidental Petroleum Corporation (NYSE:OXY) interested in buying Apache Corporation (NYSE:APA)?

May 18, 2016 at 3:03 PM
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Apache Corporation (NYSE:APA) is gaining today, thanks to what appears to be a dubious report saying that Occidental Petroleum Corporation (NYSE:OXY) is interested in buying the company. Occidental has since said it doesn't "have any knowledge around this topic," while Apache chose not to comment. Still, the seemingly contagious M&A bug has APA up 3.1% at $56.82, with stock volume running in the 99th annual percentile, and activity in the options pits heating up. 

More specifically, put volume is running at two times the normal intraday pace, and traders are favoring a short-term approach. The weekly 5/27 54- and 6/3 53-strike puts are the two most popular options today. Some traders may be buying to open positions, betting on APA to fall below $54 and $53 before the options expire at the close on Friday, May 27, and Friday, June 3. Conversely, others may be selling to open the contracts, anticipating the respective strikes will act as short-term support.

This preference for puts is nothing new. APA's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.25, which tops 77% of comparable readings from the past year. 

Bears are active outside the options pits, as well. Short sellers control roughly six days' worth of buying power on APA, going by its average daily trading volumes. This is all the more impressive, considering short interest dropped by 21% in the last two reporting periods. 

Looking back at the charts, Apache Corporation (NYSE:APA) has been strong recently, topping the S&P 500 Index (SPX) by 36.6 percentage points in the past three months, while taking back its 320-day moving average. However, APA still sits well below its 12-month breakeven level at $62.17. 

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