With the Goldman Sachs (NYSE: GS) downgrade of BP plc (NYSE: BP) Monday morning, it appears that the long-term sentiment on the oil giant’s fortunes continue to sour.
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For traders who want to position for BP’s prospects and costs from the Gulf disaster to get worse before they get better, selling an out-of-the-money bear call spread may offer an attractive risk-reward opportunity. This July strategy aims for a potential 35% return on risk to options expiration in 39 days, and has a breakeven of $41.30.
BP Credit Spread Trade Details
BP has climbed roughly 50 cents to $37.66 during recent trading.
(Be sure to adjust this option trading idea based on current pricing!)
Credit Spread/Bear Call Spread:
- Sell the July 40 call
- Buy the July 45 call
- Net credit of $1.30 ($130 per lot) or better per spread
Profit/Loss Details
Maximum Profit: $1.30 (the credit collected). This excludes 
commissions, though exit commissions will not be required if both calls expire worthless.
Maximum Risk: $3.70 (the difference between strikes minus the credit collected). Reward on risk is approximately 35%.
Breakeven: $41.30 (the strike of the lower call plus the premium collected).
By the Staff at ONN.tv
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