APC – Anadarko Petroleum Corporation – Shares of the independent oil and gas exploration and production company which holds a 25% stake in BP’s leaking well in the Gulf of Mexico dropped 4.35% late in the session to stand at $41.56 as of 3:15 pm (ET). Despite the decline in the price of the underlying today one optimistic option strategist positioned himself to one day bask in the light at the end of the tunnel by enacting a bullish debit call spread in the November contract. APC’s shares plunged 53.4% from a high of $74.14 on April 20 – the day the leak was triggered – down to a 52-week low of $34.54 on June 9, 2010. Since bottoming out on June 9, Anadarko’s shares recovered about 20% of total losses incurred since the leak began. The call-spreader observed on APC today is positioning for a more significant resurgence in the value of the firm’s shares by November expiration. The investor purchased 12,000 calls at the November $47.5 strike at a premium of $5.00 each, and sold 12,000 calls at the higher November $57.5 strike for $1.95 in premium apiece. The net cost of the bullish play amounts to $3.05 per contract. The trader starts to make money if Anadarko’s shares rally another 21.6% over the current price of $41.56 to surpass the effective breakeven point to the upside at $50.55 by November expiration. APC’s shares must surge 38.35% over the current price to trade at or above $57.50 in order for the investor to garner maximum available profits of $6.95 per contract.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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