Option Investor

Trade Alert - COP

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Broad Rally Lifts U.S. Financial Markets

Stocks soared Wednesday amid an optimistic outlook for interest rates and continued strength in the dollar. Near mid-session, all of the major equity averages were up over 1% as the buying frenzy generated a widespread advance in share values. The bullish momentum was also prevalent in the oil sector and ConocoPhillips (NYSE:COP) hit a recent high near $110 as crude prices moved above $53 for the first time in three weeks. The upside activity triggered the opening trade in our neutral-outlook calendar spread, thus we have purchased:

(5) AUG-$110 calls COP-HB

to offset/cover the existing (short) JUN-$110 calls.

Traders should also sell the existing:

(5) JUN-$115 calls COP-FC

for a credit of $0.45 or better, to reduce the cost basis in the long-term position.

The overall debit to transition to the new spread (AUG-$110/JUN-$110) should be roughly $4.30 per contract. A more thorough explanation of the trade will be published after the closing bell.

MCM Staff

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