Option Trading Idea: Apache (APA) Bear Call Spread

For those banking on a continued fall in crude oil prices, a bear call spread on Apache (APA) might offer a suitable risk/reward opportunity.

The fundamental and technical pictures for oil seem to tilt toward lower prices, especially with CFTC position limits posing a threat to the currently high net speculative long positions, which are at a level not seen since oil cost more than $100 per barrel. Technically speaking, APA has recently slipped below its 10-week moving average after being sharply rejected from a 52-week high above $105.

APA Credit Spread Trade Details:

APA is currently trading at $95.16.

Credit Spread/Bear Call Spread–

• Sell the January 100 call (out-of-the-money) for $2.35 per contract.
• Buy the January 105 call (out-of-the-money) for $1.10 per contract.
• Net credit of $1.25 per spread

Profit/Loss Details:

Maximum Profit: $1.25 (the credit collected). This excludes commissions, though exit commissions will not be required if both calls expire worthless.

Maximum Risk: $3.75 (the difference between strikes minus the credit collected). Reward on risk is approximately 33%.

Breakeven: $101.25 (the strike of the lower call plus the premium).

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