Thursday, July 8, 2010

"As Oil Spill Rages On, Option Players Remain Optimistic About Anadarko Petroleum Corporation" (APC; BP)

The stock is up another 5 1/2% today at $43.90.
From Schaeffer's Research:
It's no secret that Anadarko Petroleum Corporation (APC) has been pounded over the past three months, thanks to the company's stake in the oil field owned by BP plc (BP) that continues to leak oil into the Gulf of Mexico. Since April, APC has succumbed to pressure from its 10-week moving average, which has formed an impenetrable cap for the stock's progress (unlike the caps used in the Gulf).
Weekly Chart of APC Since April 2010 With 10-Week Moving Average

In addition to this trendline, APC faces an additional layer of resistance at the 45 level, which has stopped the stock's rally attempts for the past several weeks. Adding further frustration to APC's current technical situation is peak call open interest of 16,198 contracts at the July 45 strike.

Option players have jumped on the stock today, with 43,000 contracts traded. Calls have been especially popular, with roughly 29,000 calls changing hands by midday -- more than double APC's usual call volume of around 13,000 contracts.

Given APC's recent technical troubles, it's notable that one trader opted for a longer-term bullish position on the stock. Late this morning, 2,000 November 55 calls, marked "spread," traded at the ask price, while 2,000 November 70 calls, also marked "spread," changed hands closer to the bid price. In other words, it appears this bullish trader initiated a long call spread on APC.

In this strategy, the option player is bullish toward the stock, but has an upside target in mind for the stock's ascent. In other words, the trader thinks the stock will rise, but only so much. By selling calls at a strike that corresponds to this upside target, the trader is able to partially offset the cost of his long call position. In this instance, our long call strategist is ideally hoping for APC to rise above the $55 level, but stop its ascent right at the $70 level, by November expiration....MORE

Royal Bank of Scotland on BP: "BUY" and "Anadarko Trades at $99,999, Briefly Halted" (APC; BP)
"Don't try to buy at the bottom or sell at the top. It can't be done except by liars."
-Bernard M. Baruch
S'truth. Plus we like Anadarko better (However, see links below for BP bonds)
BP's up 6.71% at $31.32, APC 2.29% at $38.92.
We first started talking nice about APC in "Bullish Options Plays in Anadarko Petroleum (APC)" and followed up with "UPDATED: Sometimes the Crowd is Right: Relatively Heavy Call Activity in Anadarko Petroleum (APC)" in which I noted

...Yesterday we posted "Bullish Options Plays in Anadarko Petroleum (APC)" and I received a couple emails that implied I had lost my marbles.
We answer all mail...