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BP, Total Call Options In Play For A Second Day

Today’s tickers: BP, TOT, CHS, CJES & ANF

BP & TOT - BP PLC & Total SA – Intriguing activity in call options covering Europe’s second- and third-largest oil companies, BP and Total, carried over from Thursday’s trading day to the final session of the week. Shares in both companies are up on the day, with BP gaining 1.8% to $42.07, and Total rising 1.1% to $52.36, by 12:35 pm EDT. Yesterday we noted one strategist’s dispersion trade; selling calls on Total and buying calls on BP, in a position that seemed to suggest fruitful months ahead for BP and less-stellar share price performance at Total.

News out on BP today may support such bullish sentiment. The company was reportedly granted approval by U.S. regulators to once again engage in oil exploration in the Gulf of Mexico, its first such approval since the company’s disastrous offshore spill in 2010. BP is slated to report its performance for the third quarter ahead of the opening bell on October 25, while Total reveals its numbers pre-market on October 28.

The call activity in both names this morning is almost identical to that observed on Thursday. It looks like the investor sold some 7,600 Total calls at the May 2012 $55 strike for a premium of $3.30 each, and purchased around 8,400 calls on BP at the April $44 strike for a premium of $2.89 apiece. The strategist walks away with the full amount of premium received for writing the TOT call options as long as shares in the French oil company fail to exceed $55.00 at expiration in May. Meanwhile, profits may be available on the long BP call options should shares in the name rally another 11.5% to surpass the effective breakeven price of $46.89 by expiration in April 2012. Options implied volatility readings on both stocks are down roughly 6.0% as of 12:50 pm in New York.

CHS - Chico’s FAS, Inc. – Bullish options players have taken a shine to the retailer of private-branded apparel and accessories today, with shares in the Fort Myers, Florida-based company rallying 2.25% to $12.35 on a risk-on day for U.S. equities. Investors positioning for Chico’s shares to extend gains snapped up call options in the November contract. The most heavily populated option is the Nov. $14 strike call, which changed hands upward of 4,700 times in the first half of the session against open interest of 653 contracts. Options players appear to have purchased at least 3,300 of the calls for an average premium of $0.21 a-pop. Call buyers may profit at expiration in four weeks in the event that the apparel retailer’s shares surge 15.05% to surpass the average breakeven price of $14.21. CHS shares last closed above $14.21 back on August 3. Options implied volatility on the stock is running 8.5% higher on the day at 52.2% as of 11:45 am in New York.

CJES - C&J Energy Services Inc. – Shares in the independent provider of premium hydraulic fracturing, or fracking as it’s often referred to, slipped 0.80% to $17.00 in early-afternoon trade. The stock popped up on our ‘hot by options volume’ market scanner due to heavier-than-usual trading traffic in November contract puts. It looks like one or more investors snapping up the puts are bracing for shares in the fracking provider to pull back substantially by expiration next month. Thus far in the session, investors have traded 2,075 option contracts on the stock, which is sizable next to the stock’s overall open interest level of 5,879 positions. Put players traded 1,500 puts at the Nov. $15 strike, trumping open interest of 130 contracts at that strike. It looks like the put options were purchased for an average premium of $1.06 apiece. Traders holding the options profit at expiration in November if shares in CJES plummet 18.0% in the next four weeks to breach the effective breakeven point on the downside at $13.94. Options implied volatility on the stock is up 7.15% at 95.7% as of 12:30 pm on the East Coast.

ANF - Abercrombie & Fitch Co. – Size-large put spreads on Abercrombie & Fitch Co. are on-trend again, with shares in the retailer little changed from yesterday’s closing price of $69.69. The Nov. $60/$70 put spread, which was purchased roughly 8,000 times for an average net premium of $3.13 on Wednesday, are today the most active contracts on the stock. Perhaps the same strategist is augmenting the size of the bearish position ahead of ANF’s third-quarter earnings report on November 16. Alternatively, the newest trades may be the work of a like-minded investor preparing for the price of the underlying to pull back in the next four weeks to expiration.

The put player initiating the largest of the Nov. $60/$70 strike positions purchased the 6,650-lot put spread at a net premium of $3.25 each. The investor may profit at expiration if Abercrombie’s shares decline 4.2% to breach the effective breakeven price of $66.75. Maximum potential profits of $6.75 per contract are available to the strategist in the event that ANF’s shares plunge 13.9% to trade below $60.00 at expiration next month. Shares in Abercrombie & Fitch Co. dipped to as low as $57.17 as recently as October 4.

Caitlin Duffy
Equity Options Analyst

 


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