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BP is on sale right now and while that may be great what we don't know is how long we will be seeing or hearing about how much more oil is pouring into the "ocean" of the Gulf of Mexico (CEO words not mine).

So some comments could have been better and it looks like some of the numbers may not be any more accurate like how much oil is being lost. So does this mean that BP should be avoided at all cost? After all, what is the point of buying a stock today when the stock may hit another setback tomorrow like BP has almost daily.

The cap has not worked, the turning off of the valves on the blowout value has not worked and it is a mess with no end in site. We all know that at some point this nightmare for investors of BP should come to an end but the big question is when. If there was nothing there we may be able to dismiss BP and move on to another stock. But that is the problem, there is something there. Currently BP has a P/E of under 8 based on the Seeking Alpha information, has a dividend yield of over 7% and looking beyond the costs with the cleanup has what appears to be a relatively bright and profitable future.

Sometimes that is what you get when you combine a great yield, low P/E and as good of a long term prospect as most. Exxon (NYSE:XOM) is not getting as bad press as BP and their P/E is 14 with a yield of about 2.8%, so some things look very different. One thing that may be the same for all companies in this space is that if new restrictions and/or obstacles are placed in the way for oil companies to drill in new locations this may work to BP's favor from the new investor's point of view. If new obstacles are put in place then it may be expected that market share would stabilize giving BP a better lock on the current market share and providing a relative gain in current reserves.

It would seem reasonable that when BP announces that the leak is contained the next step is to clear up what mess has been made but once the spill has ended the price of the stock should have a jump higher. The market discounts uncertainty and in BP's case I believe the market is discounting for a much larger than realistic total cost. This surely is understandable as stoplosses have been taken. So if the numbers beyond the new are to be exploded and an investor wants to put capital at risk with BP how does one time it?

One way and the way I am entering into the BP trade is through options. By either buying the stock and hedging with calls or with what is basically the same thing by shorting BP puts one may help lower the precision needed to time the recovery without taking on so much pain if wrong by a small amount. With BP trading at a closing price of about 46.50 and an October 2010 50 calls trading for about 2.80 each an investor would have downside protection of 2.80 with an upside of about 6.30 per share. Of course, the dividend is a variable that is unknown and could disappear to pay for the cleanup which would also likely put some downward pressure on the stock.

Any dividend that was paid might not be taxed as short term capital gains so that would be worth looking into as well. With the current dividend of about 1.65 per share during the period from now until the third week of October, if the dividend survives the mess, this could turn into a nice trade. I have gone long BP with covered calls as well as naked puts as I believe absent another rig blowing up or some other equally bad thing BP will get this fixed and BP will turn into a profitable trade. The use of the options allows me to use time decay to at least partially offset the amount of time it takes for BP to contain and fix the problem.

Disclosure: Long: BP; no position with XOM

Source: BP: What Options Does an Investor Have?