APC Options – Unusual Trading Activity – November 16, 2012
This week we’re taking a look at some very unusual options trading activity in Anadarko Petroleum (APK).
As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason…
Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
Anadarko Petroleum Options (APC)
Options on natural gas company Anadarko Petroleum (APC) are experiencing a large amount of trading activity today.
APC operates in three segments, Oil and Gas Exploration and Production; Midstream; and Marketing. And they have proved reserves of about 2.5 billion barrels of oil equivalent.
As I’m sure you know, natural gas prices were in the tank earlier this year. In April, natural gas prices fell below $2.00. Obviously, the low price for the commodity wasn’t good for stocks like APC that make their money selling natural gas.
Over the last six months, natural gas has staged a dramatic turnaround. Prices have surged 44% to around $3.70 today. And it’s near the same price it was trading for a year ago.
But natural stocks like APC haven’t recovered as well.
APC initially recovered in lock step with natural gas as the commodity reversed. But the recovery in APC hasn’t continued to follow natural gas prices higher. In fact, APC is still down more than 20% from the 52-week high.
Over the last few months, the stock has settled into a tight trading range between $65.00 and $75.00. And at least one option trader thinks APC is unlikely to break out of this range soon.
How do I know this?
Simple… A trader sold 3,500 of the APC February 2013 $77.50 calls for $2.48 apiece. It was a huge spike in volume of more than 5 times the strike’s open interest. So, it’s safe to say this is a new position.
As the seller of the call option, the trader immediately collects $868,000.
The trader could be doing a few different things…
They could be writing naked calls as a bet that APC will remain below the $77.50 strike price until the options expire in February.
In this case, their maximum profits are the initial premium of $868,000 they collected when they sold the options. But their risk is unlimited. The higher APC goes, the more the trader can lose.
A more likely scenario is the trade is part of a covered call position. The long stock would limit the liability of the call writer but also cap the gains they’ll make on the stock position.
Any way you slice it, the option trader thinks APC is staying below $77.50 in the months ahead.
I think the trader could be in for a rude awakening…
APC is consolidating in what technical analysts call a symmetrical triangle. This pattern is formed when two trend lines converge toward each other.
The chart pattern is neither bullish nor bearish. So there’s just as good of a chance the stock will breakout to the upside as the downside.
What’s important is we’ll typically see this pattern form before a big move in the stock.
If APC makes a big move higher before February, this trader could be kicking himself.
More Options Ideas…
That wraps up this week’s unusual options trading and volume…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!
Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
