Trading has been decidedly bearish in BP since the Deepwater Horizon oil spill started in late April, and now one investor is positioning for a complete collapse.
OptionMonster's tracking systems detected the purchase of about 7,500 January 7.50 puts on the oil company against open interest of 2,436 contracts. Premiums rose from $0.65 even as BP inched higher, which confirmed the buying trend. A large transaction for $0.83 accounted for most of the activity.
BP shares fell 4.9 percent to $29.86 in US morning trading and is down 49 percent since the fatal explosion struck its offshore drilling platform on April 20. Yesterday Fitch slashed its credit rating from AA to BBB on worries about cleanup costs associated with the Gulf of Mexico spill.
While option activity has been broadly negative, most of the recent transactions have focused on strike prices such as the 20s, 25s, and 30s, which are much closer to being in the money. Today's interest in the 7.50 level reflects a much greater concern about how low the shares could fall.
For instance, the 7.50 puts typically trade only about 1,500 contracts a day and has total open interest of 17,910 contracts across all expirations. That means this morning's transaction is unusually large versus the recent trend.
Overall options volume in BP is less than half the average level so far in the session. Puts outnumber calls by more than 2 to 1.
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Russell does not hold significant shares of BP.
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David Russell is a reporter and writer for OptionMonster.