BP Analysis

BP p.l.c. (BP)

BP publishes earnings on Tuesday before the opening bell.

I shall use the MAR series of options, which trades for the last time 39 days hence, on March 17.

Implied volatility stands at 22%, which is 1.9 times the VIX, a measure of the volatility of the S&P 500 index.

BP’s IV stands in the 55th percentile of its annual range and the 11th percentile of its most recent broad movement.

The price used for analysis was $35.76.

Premium: $1.63 MAR iron fly
BP   Odds Delta
Long 38.00 88.6% 13
Break-even 36.63
Short 35.00 41.1% 63
Short 35.00 56.5% 40
Break-even 33.37
Long 32.00 89.5% 9

The premium is 54% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

Decision for My Account

The difficulty with BP was the options grid. the $32 put strike has open interest of 73 contracts. My rule of thumb for such liquidity that way is triple digits or better. None the less, the bid/ask spread for the at-the-money call option is only 4 cents, so I bent my rules a bit to take the trade.

The stock at the time of entry was priced at $35.75.

By Tim Bovee, Portland, Oregon, Feb. 6, 2017

4 thoughts on “BP Analysis

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