Assume it is June, 2010 and you are awaiting clarity on BPs fundamentals. As an investor, you are looking at options scenarios given the unpredictable oil spill crisis and associated firm specific risk (unsystematic risk). BPs closing price on June 8, 2010 was 34.67. Using the option prices shown below for the underlying security (BP), do the following:
Create a straddle by buying the October 35 call and the October 35 put. What's the maximum loss for this position and what stock price will produce it? Where will you break even? Why would an investor establish a position like this?
BP US t 34 6775 2.0825 D Equity COMMON DELAY 16 15 Mol 95,233,244 0p 35.83 T Hi 36.12 D Lo 34.15 B ValTrd 3355.111m mplied Vols (OMON BP PLC-ADR 34.6775 -2.0825 -5.6651 34.70 34.69 Hi 36.12 Lo 34.15 Vol 95233244 HV 68.28 910 News acalc Mode Center 34,68 A Strikes or N Exchange 0mposite Next Earnings: 07/27/10 C Cal Ticker Bid Ask Last IVM DM Volm nt Strike Ticker Bid Ask Last IVM DM Volm 19 Jun 10 (11d), CSize 100.00; R 0.33 5 l 19 un 10 (11d); CSize 100.00: R 33 BP 6 C33 2.71 2.77 2.71 79.61 .67 78 33.00 20 BP 6 P33 1.03 1.09 1.03 79.50 33 1885 2251 1.38 1.43 1.39 76.19 41 2692 2875 BP 6 C344 2.06 2.11 2.05 76.16 L59 288 239 2) BP 6 P34 35.00 29 BP 6 P35 1.82 1.87 1.87 73.04 51 2667 25770 BP 6 C35 1.51 1.55 1.50 73.39 .49 1455 5066 Lt) BP 6 C36 1.06 1.10 1.10 71.15 .40 1396 1408 36.00 I BP 6 P36 2.37 2.43 2.41 71.18 60 436 2974 Bp 6 C 37 71 75 70 69.23.3 1492 2808 37.00 30 BP 6 P37 3.00 3.10 3.05 69.14 69 188 2922 17 Jul 10 (39d): Csize 100.00: R 0.38 17 Jul 10 (39d): CSize 100.00: R 0.38 33.00 31) BP 7 P33 2.22 2.26 2.25 69.17 BP C33 3, 90 4.00 4.00 69 76.63 59 219 34.00 32 BP 7 P34 2.60 2.66 2.69 67.05 BP 7 C35 2.75 2.81 2.73 65.54 .53 2404 1033 35.00 33 BP 7 P35 3.05 3.10 3.10 65.13 48 164118775 BP CE 6 227 232 22S 63.96 47 474 511 36.00 BP 7 P36 3,55 3,65 3,65 63,86 53 2348 1917 BP 7 C37 1.83 11.88 1.83 62.20 41 477 833 37.00 3S BP 7 P37 4.15 4.25 4.20 63.05 59 494 8181 16 oct 10 (130d): CSize 100.00 Div 0,84 USD: R 0.63 SIl 16 Oct 10 (130d: CSize 100.00; Div 0.84 USD: R 0.6 I BP 10 P3 4.15 4.30 4.20 S9.10 -40 11 33.00 4.3S 4.55 4.40 61.02 .54 197 5564 35.00 BP 10 P3 S.10 5.25 5.2S S6.68 47 348 9728 BP 10 C3 3.90 4.05 4.10 59.90 .51 7 18 36.00 3) BP 10 P3 5.60 5.75 5.70 55.30 51 17 558 3.45 3.60 3.65 58.70 47 51 270 37.00 4) BP 10 P3 6.15 6.30 6.30 53,96 55 3 1048 BP 10 C3 22 Jan 11 (22 d) Csize 100.00 Div 1.68 USD R 0.87 5Il 22 Jan 11 (228d); Csize 100.00; Div 1.68 USD; R 0.8 1 66 33.00 41) BP 1 P33 5.25 5.35 5.40 52.33 42 39 171 140 BP 1 P34 5.70 5.85 5.95 51.11 26 1565 15 BP 1 C33 6.35 6.50 6.50 59.88 .61 BP 1 C34 5.80 6.00 6.00 58.77 .58 2950 Center Strike Zoom 100% Australia 61 2 9777 8600 Brazil 551 3048 4500 Europe 44.20.7330 00 Germany 49 69 9204 1210 Hong Kong 852 2977 6000 Japan 81 3 3201 8900 ngapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2010 Bloomberg Finance L.P SN 9551230 08-Jun-10 1
