OPTIONS REPORT: Traders See Anadarko Stuck In The Muck

30th Jun 2010 20:30

By Brendan Conway Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--On a day when investors retained some optimism over BP PLC's stock, options traders suggested that shares in Anadarko Petroleum Corp., a key partner in the Gulf oil spill, will stay depressed for several months. BP's stock has reflected speculation over the last few days that some or all of the oil giant's assets could become acquisition targets. Its American depositary shares rose 4.1% recently to $28.79, and currently stand more than 7% above the 14-year intraday low hit last week. But the good feeling hasn't much extended to Anadarko, the owner of a 25% stake in the leaking Macondo well whose stock is worth roughly half its precrisis value. Here, an options trader appeared to execute what is known as a short strangle lasting through November. The play is used when an investor feels confident that the stock won't move outside of a range. In this case, on a day when Anadarko shares rose 1.5% to $37.22, the investor appeared to sell 5,000 of Anadarko's November $27.50 puts while also selling the same number of November $40 calls, according to Interactive Brokers equity options analyst Caitlin Duffy. The investor pocketed $8.42 per contract pair and effectively bets the shares won't move higher than $48.42 or lower than $19.08 over the next several months, she said. A call conveys the right to buy stock, while a put conveys the right to sell. "The view is that the disaster has already been priced in, and shares are going to stagnate over the next five months," Duffy added. At the same time, the trader has left more room for Anadarko shares to fall than to rise. Hitting the low end of the range requires a drop of about 48% from Tuesday's close, but reaching the upper end requires a rise of about 32%. In either case, the trader has collected a sizeable premium and is "pretty much safe as long as shares don't collapse or fly upwards," Duffy added. Anadarko reports quarterly earnings on July 27. Elsewhere in options, traders looked to contracts in drug giant AstraZeneca PLC the day after the company won a key patent victory for its blockbuster cholesterol drug Crestor. The victory was seen as a boost to its efforts to fight generic competition. The bulk of the action occurred in AstraZeneca's $40 August puts, with more than 27,000 changing hands. The overall trading in those contracts was mixed, but a notable amount consisted of put selling, according to WhatsTrading.com analyst Frederic Ruffy. Selling a put signals confidence that the stock won't fall beneath certain levels. AstraZeneca reports quarterly earnings on July 29, so traders showing interest in these contracts get exposure to the news, good or bad. Executing a sale of AstraZeneca's $40 August puts to capitalize on good news at afternoon prices of 35 cents allows the trader to collect the premium, and bet that the stock won't fall beneath $39.65 before expiration on Aug. 20. Traders also showed up for contracts in women's apparel retailer Talbots Inc. in the absence of major news. The action skewed heavily toward bullish call options, with nearly 17,000 crossing the tape, compared to 1,300 puts, according to Track Data. Among notable trades was what Interactive Brokers called an optimistic call spread that expires in August. Involving a purchase of the company's $11 contracts and sale of the $12.50 calls, this trade works best if Talbots shares reach $12.50 or higher by mid-August. The stock rose 3.5% to $10.39. -By Brendan Conway, Dow Jones Newswires; (212) 416-2670; [email protected] (END) Dow Jones Newswires June 30, 2010 15:30 ET (19:30 GMT)