Option Activity Alert: BP, WFT, ITT

BP – BP PLC – Options volume, options implied volatility and the value of shares in BP are on the rise ahead of a press conference in which the oil company will reportedly shed light on a possible deal with the Russian state-controlled oil company, Rosneft. Volume in options traded on BP is fast approaching 270,000 in the final 30 minutes of the session, with shares in the name having rallied as much as 4.1% to touch an intraday- and more than 6-month high of $49.50. The overall reading of options implied volatility on the stock continues to climb as well, currently standing 30.1% higher on the session at 30.16% as of 2:55pm. Investors populating BP options are trading call options on the stock more than 2.2 times for each single put option in action. Trading traffic in calls is heaviest at the January $50 strike where more than 18,600 contracts have changed hands. Investors were also seen buying higher-strike calls in the name, with 12,500 calls exchanged at the January $52.5 strike on open interest of just 3,834 lots. The majority of these call options traded on the ask for an average premium of $0.18 each. Bullishness spread to the higher January $55 strike where more than 4,500 calls were picked up at an average premium of $0.05 a-pop. Similar buying patterns were observed in February contract calls, albeit at lower volume. Meanwhile, put options expiring at the end of next week received a good deal of traffic as well. More than 26,500 puts changed hands at the January $47 strike, versus previously existing open interest of just 4,401 contracts. Investors appear to be buying the puts, perhaps to lock in gains, hedge a long position in the underlying shares, or to speculate on a near-term pullback in the price of the underlying. Upwards of 13,100 puts were bought and sold in roughly equal numbers at the closer-to-the-money January $48 strike ahead of the closing bell.

WFT – Weatherford International Ltd. – Activity in long-dated call options on the provider of oil equipment and services indicates one options trader foresees substantial appreciation in the price of Weatherford’s shares over the next 12 months. WFT shares are currently up 2.8% to stand at an intraday- and new 52-week high of $23.88 as of 1:50pm in New York. The bullish options trader purchased a sizeable call spread, buying 10,000 lots at the January 2012 $30 strike for a premium of $1.31 per contract, and selling the same number of calls up at the January 2012 $40 strike at a premium of $0.25 apiece. The net cost of the transaction amounts to $1.06 per contract. Thus, the investor responsible for the spread is positioned to profit should shares in Weatherford surge 30% over today’s high of $23.88 to surpass the effective breakeven price of $31.06 ahead of expiration day next January. Maximum potential profits of $8.94 per contract, or $8.940 million, are available to the trader should WFT’s shares jump 67.5% to trade above $40.00 before the contracts expire in 2012.

ITT – ITT Corp. – Shares of the manufacturer of a range of engineered products edged 0.65% lower this afternoon to $59.06, returning some more of the big gains posted earlier this week on the firm’s plans to split itself into three publicly traded companies. ITT Corp.’s shares surged 21.6% from Monday’s low of $52.61 to a new 52-week high of $64.00 on Tuesday, bringing the stock up 52.2% off its August 25, 2010, 52-week low of $42.05. Investors populating ITT Corp. options today are employing bullish tactics also observed during trading on Thursday. Investors paid an average of $0.60 per contract to buy more than 13,000 calls at the April $65 strike this afternoon. Call buyers at this strike are poised to profit should shares in the name surge 11.1% over the current price of $59.06 to surpass the average breakeven point to the upside at $65.60 ahead of April expiration. Options traders purchased more than 12,000 calls at the same strike yesterday for an average premium of $0.85 apiece.

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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