OPTIONS REPORT: Bears Paw BP, But Bulls Charge Anadarko

14th Jun 2010 20:30

By Brendan Conway Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Bears had a firm hold on BP PLC options Monday, but bullish traders dominated much of the action elsewhere, making short-term bets that shares in companies including Gulf oil spill-linked Anadarko Petroleum Corp. can make fast gains in the next few trading sessions. In BP, the company at the center of the Gulf crisis, the overall trading took on a bearish tone as shares slid 8.7% to $31.03 due to speculation about the company's dividend, a proposed reimbursement fund and the cost of cleaning up the spill. Options traders picked up 215,000 puts conveying the right to sell shares, compared to 139,000 calls allowing them to buy BP, according to Track Data. The day's notable action divided those bracing for bad BP news this week and those who are preparing for negatives on a later time frame, in this case by mid-July. In particular, early-day traders focused on BP's near-term $30 puts that offer protection through Friday, noted Joe Kinahan, chief derivatives strategist at TD Ameritrade. But later in the session, the action featured what are known as calendar spreads wherein a trader sells this month's put options in order to buy contracts that expire next month. "The bottom line is, this story is not over. If you think there's going to be a break in the news this week, you're buying the Junes; otherwise you're buying July," Kinahan said. Options contracts expire Friday, meaning any action in June's contracts are premised on short-term moves. It also means traders active in the contracts are comfortable with the inevitable decline in value as expiration approaches. As stocks staged an early-day rally Monday, traders came out in the first half of the day to bet on upside before the end of Friday. Among them were aggressive traders in Anadarko Petroleum, a minority owner of the well leaking oil into the Gulf of Mexico; the traders eagerly scooped up call contracts. In particular, around 10:00 a.m. EST, one trader picked up 2,700 near-term $47.50 calls at a premium of 30 cents, said TradeKing senior options analyst Brian Overby. The calls make money only if Anadarko's stock--up 1.6% to $42.48 recently--rises about 13% by Friday. Others traders piled into the same contract, sending the action to twice the open interest. "This is a very aggressive trade," Overby said, and not only because it is premised on a sizeable gain in Anadarko shares by Friday. Anadarko's June $47.50 calls--which cost 15 cents at the open--had spiked more than fourfold by mid-morning before returning to 55 cents recently. By Friday they expire, and they will be worth zero. Traders must be comfortable with a rapidly approaching decline in price. Elsewhere, bulls also showed up for casino operator Las Vegas Sands Corp., trading 69,000 calls compared to about 38,000 puts. The action was particularly strong in $28 call options that expire Friday. At a premium of 12 cents, the contracts make money if Las Vegas Sands shares top $28.12 in the next few trading sessions. The stock rose 2% to $26.24 in recent trading. Bulls were also actively selling Las Vegas Sands calls in a bet that the stock won't drop before Friday, according to Interactive Brokers. Looking to next month, bulls also executed notable trades in toymaker Mattel Inc., with what looked like a bullish risk reversal in the company's July options. On a day when the stock rose 1.3% to $21.83, they appeared to buy about 8,000 $22.50 call options while selling the same number of $20 puts, according to WhatsTrading.com. The position makes money if the stock adds about 5% before mid-July. But the trader loses money if the stock falls much below $20 over the same time frame. -By Brendan Conway, Dow Jones Newswires; 212-416-2670; [email protected] (END) Dow Jones Newswires June 14, 2010 15:30 ET (19:30 GMT)