Market Insights

BP has been clawing higher, and options traders are getting active.

A large transaction was detected yesterday in the British oil-and-gas giant:

• Some 20,000 June 30 calls traded for about $1.38.
• A matching number of June 31 calls changed hands at the same time for $0.79.
• Volume was below open interest in the 30s but not the 31s, which suggests an existing position was rolled up from the lower strike.

Calls fix the price where investors can purchase a security, so they tend to gain value when shares appreciate. There are two possible explanations for Monday’s transaction, both of which are potentially bullish.

First, an investor may have entered the session owning the June 30 calls and made money as the stock advanced. He or she could have sold the options and swapped into the June 31s. That would have let them recover $0.59 and remain exposed to further upside.

Alternately, the trader might own BP shares and have sold the June 30s as part of a covered call strategy. They could have repurchased the options and sold the June 31s instead. Making that adjustment would have cost $0.59 and let them collect an additional $1 from the stock potentially continuing higher.

BP (BP), daily chart, with select patterns and indicators.

BP rose 1.4 percent to $30.19 yesterday. It hit a 3-1/2 year low of $25.22 on April 9, followed by a higher low above $27 at the end of last month. It jumped on May 5 when Bloomberg News reported Shell (SHEL) was considering a potential takeover. That story also triggered increased call volume as traders positioned for potential upside.

Aside from the possibility of a acquisition, BP has climbed along with other energy stocks as trade tensions ease between the U.S. and China.

Overall option volume was more than twice the daily average in Monday’s session. Calls accounted for a bullish 83 percent of the activity, according to TradeStation Data.

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