Bullish Risk-Reversal Trades on Plains Exploration (PXP)

Shares of Plains Exploration & Production Company (PXP) are trading higher on the session by 0.88%, at $36.58. The stock has been consolidating lower over the past three months and is currently testing the $36.00 historical support/resistance level.

With shares at a critical technical juncture, one trader is putting on a highly leveraged bullish position. A short while ago, the May 2013 $30/40 bull risk reversal traded 10,348 times at a net debit of $1.35. The $30 put was sold, near the bid, for $2.05, while the $40 call was purchased, on the offer, for $3.40.

With respective open interest of 0 and 82 contracts, this is clearly new positioning.

30-day Implied volatility is flat on the session, at 40.54%. This represents a large divergence to near-term historical volatility, at only 23.30%. Clearly the options market sees the potential for movement in the name over the next few weeks, perhaps to the upside, as the above trade suggests.

A potential catalyst could be Plains Exploration’s Q3 earnings report, which is scheduled for November 1^st, before the opening bell.

Plains Exploration & Production Company is an independent energy company engaged in the upstream oil and gas business. The upstream business acquires, develops, explores for and produces oil and gas. 

About Michael Zerinskas

Originally from Chicago, Michael J. Zerinskas began his career as an intern for a small high-frequency trading firm based at the CME; he then moved on to become Chief Options Strategist at Benzinga.com. Michael is now Unusual Activity Editor at The Options Insider, specializing in VIX, volatility, and flagging unusual activity.