A strategy idea for options trading investors.
Here’s a fantastic spec play in our newsletter the Market Taker Edge. The stock is the Plains Exploration and Production Co. (NYSE: PXP). The option play is: buy PXP Aug 43 Calls at $1.10.
PXP has been climbing high and looks like it could climb even higher. The Implied volatility of PXP is at very low levels making the options inexpensive. The Aug 43 calls are a great way to play this continued move. PXP is an independent oil and gas production company.
Here’s why — For one, because of the cheap volatility, buying a call makes sense. For two, that particular month and strike offers the greatest leverage. Shorter-term options have better leverage for breakout candidates. And the somewhat out-of-the-money calls offer the best leverage as well.
Overall, this is a straightforward, simple spec play with lots of potential.
Dan Passarelli of MarketTaker.com writes the Market Taker Edge options newsletter. Dan has more than 17 years’ experience in the options industry as a market maker, Options Institute instructor and author of “Trading Option Greeks.”