Trading a Bull Call Spread in BP plc (NYSE: BP)

BP plc (NYSE: BP) shares are making new 52-week highs today above $62 despite the 7% drop in crude oil in the past week. The integrated oil giant is discussing a deal with SINOPEC to explore shale properties in China and this April bull call spread may be one low-risk way to play this price strength and any positive reaction to the new opportunity.

BP Debit Spread Trade Detail

BP is currently trading at $62.08.

Debit Spread/Bull Call Spread–

• Buy the April 65 call (out-of-the-money) for $1.06 per contract.
• Sell the April 70 call (out-of-the-money) for $0.23 per contract.
• Net debit of $0.83 (or $83 per spread)

Profit/Loss Details:

Maximum risk: $0.83 (the debit paid at the time of the trade) plus commissions.

Maximum potential profit: $4.17 (the difference between strike prices – 5 – minus the debit of 83 cents). Return on risk is approximately 502%.

Breakeven: $65.83 (the strike price of the purchased call plus the debit paid).

For more on BP:

Sector Update: Energy

Iraq completes Shell-led deal for huge oil field

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