BP Call Spreaders Assert Optimism

BP – BP Plc – ADR – Continuing to buck the broader market shares in BP are again in the green with a 2.4% gain at $37.02 while the S&P 500 is resigned to trading off weakness in manufacturing data. Options strategies continue to appear on the most actively traded scanner and today’s pick is a bullish ratio call spread play in the January 2011 contract. An investor bought 1,000 $45 strike calls and sold 2,000 $50 strike calls for a net credit of 20 cents. The investor clearly expects the rally to continue and has a $50 target in mind. Up until that point he has a free ride, actually taking in a $40,000 credit for the trade up front, while the position wouldn’t turn sour until $55 when profits grown from above $45 are equally offset by losses growing at twice the rate at a share price above $50. Implied options volatility continues to indicate that investors are more comfortable with the outlook and has dipped 7% to stand today at around 63%.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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