Options Trading News

May 16, 2013  Thu 3:47 AM CT

A bearish trade is targeting Plains Exploration as shares try to hold above a key support level.

optionMONSTER's Depth Charge system detected the purchase of 5,000 June 55 puts for $1.83 and the sale of 5,000 June 40 puts for $0.55. The volume was multiples of the previous open interest at each strike, clearly showing that this is new positioning.

The trade cost $1.28 to open, which is the maximum amount at risk in this vertical spread. The maximum gain of $2.72 would be realized if the position is held until expiration and PXP is below $40. (See our Education section)

PXP rose 1.01 percent to $44.79 yesterday. The oil and natural-gas company has bounced off support at $44, a level tested only once since December, when it gapped up from $36. Shares were trading above $48 a month ago.  

Total option volume in PXP exceeded 22,000 contracts yesterday, more than 5 times its daily average for the last month. Puts outnumbered calls by more than 3 to 1.
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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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