COP

O

oldnemesis

http://www.benzinga.com/news/earnings/15/10/5949610/conocophillips-posts-q3-loss

http://www.zacks.com/stock/news/195649/conocophillips-cop-posts-narrower-q3-loss-miss-revenue

http://finance.yahoo.com/echarts?s=COP+Interactive#{"range":"5y","allowChartStacking":true}

http://finance.yahoo.com/q/cf?s=COP

http://stockcharts.com/h-sc/ui?s=uso

http://www.msn.com/en-us/money/stockdetails/financials/fi-126.1.COP.NYS

http://www.msn.com/en-us/money/stockdetails/fi-126.1.COP.NYS

Trade:
With COP at 53.48
May 70/75 bear call spread for a net credit of $35
Yield = 35/465 = 7.5% in 173 days or 15.9% annualized
Prob = 91%
Expectation = .91(35) - .05(465) - .04(233) = 31.85 - 23.25 - 9.32 = 0

Price........... Profit / Loss......... ROM %
40.00................. 35.00............... 7.50%
50.00................. 35.00............... 7.50%
60.00................. 35.00............... 7.50%
70.00................. 35.00............... 7.50%
70.35................... 0.00............... 0.00%
72.08............... (172.70).......... -34.54%
75.00............... (465.00).......... -92.50%
80.00............... (465.00).......... -92.50%
90.00............... (465.00).......... -92.50%
 
Last edited:
The option markets on those two strikes are very wide for options under $0.50. Where you able to sell this spread for $0.35 on Friday? It seems a little high for those markets. If you can, I do like the spread and the return. I'm just not sure you can get your price. At a .28/.29 vol it looks like it will trade closer to $0.17 to $0.20.

Good luck....Bob
 
The bid ask spread on those strikes is -.09 to .46 with a last of 40 - 11 = $29. So the fill of $35 is optimistic. Actually the $35 comes from OptionsXpress which uses a 'secret' algorithm to get the suggested fill price based on fills that COP options were experiencing on Friday in OptionsXpress' dark pool.

This would NOT be the first time their estimate proves too optimistic... nor would it be the first time their estimate gives me an instant fill.

Once the market opens the market may move to reinforce this estimate or refute it.

When OXP gives me such an estimate I usually submit the trade before market open and watch fills to see if I get anything. Especially on a Monday morning I would not be too surprised if I got a fast fill. Maybe...maybe not. It costs me nothing to try. Key to getting their suggested fill is using OptionsXpress to put the trade through their spread dark pool.

As you see I need the $35 to give me an expectation of zero. The expectation is based on past price distribution and ignores the current news about the underlying which may move probabilities considerably.

Integral to my thinking is the belief that COP, considering all things, is not going to see $70 before May expirations.

My rule in such a situation is to try to get the fill... If I get it I take it, if not I move on.

I would not take this trade at a lesser fill.
 
I don't follow the options on this name or the equity. I can only look at the skew curve at EOD on a platform I have access to. If what I see is close to correct, I would say this is a good sale down to $0.25. I hope you get it. Please let me know.

Bob
 
Well I got a slow start yesterday and missed the open but today I WAS there for the open. So far... no luck on a fill. Still the bid/ask on the spread makes a fill possible. I will leave the trade in the market for the remainder of the week and see if I catch a fish.
 
I'm still not clear who would buy that spread for $0.35 when the midpoint, which looks like a proper skew, is $0.19. If I were still a MM, I'd be a seller much lower than $0.35. I have to assume a MM will step in front of you and sell it lower than you. I could see being a seller at $0.25.

Good luck,

Bob
 
Well... of course Bob was right. I have been unable to get a taker at $35. Sometimes, in such situations I DO get a taker... but not this time.

:-)

I really don't want the spread for less since I need $35 to get a positive expectation. So I have killed the order... and hereby cancel this post.
 
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