Pair Trade: Long BP, Short SPY
Fundamental Commentary
BP's issues in the Gulf finally appear to be stabilizing, although the situation remains extremely fragile.
So far, the latest estimate on BP's oil spill tab is 3.2 billion - though this number is likely to increase as claims continue to go out. However, this is nowhere near the $20 billion that BP set aside last month for the purpose of paying claims related to the spill.
Even more, BP's standby loan has rapidly increased to $9 billion as more banks agree to participate in loans to help BP pay claims related to the spill. Amongs the banks participating: Barclays, BNP Paribas, Citigroup, Banco Santander, HSBC, RBC, RBS, and Societe Generale.
The stance by these banks helps assuage the possibility of bankruptcy, especially caused by issues of liquidity.
Furthermore, "Libya's top oil official called BP a bargain, recommending that the nation's sovereign wealth fund invest in the oil giant's battered stock even as it continues to reel from its disaster in the Gulf of Mexico." (WSJ)
BP also announced that they are likely to "kill" the Macondo well by mid-August, ahead of the previously expected schedule.
BP shares have dropped 49% since the April 20 disaster that sparked the worst oil spill in recent history.
Statistical Commentary
I recently read an article that claimed that the technicals on BP mean nothing - news is the only thing moving this stock.
For the past few weeks, I think he was correct. But this trend may be changing, as traders pick up on how appealing BP's technicals are becoming.
You can see the enormous collapse that began in about May and has continued through June. However, in recently the trend appears to be reversing with BP gainly sharping relative to the S&P 500.
It looks like its poised to continue its gains, especially with the fundamentals starting to stabilize.
The pair is trading in the 5.61% percentile and is 3.15 standard deviations from the mean.
Our Pair Trading Tool puts the target move at 68.21%, a gain that would only come to fruition if BP rebounds closely to its pre-spill price.
If you believe in the principle of mean convergence, it is reasonable to expect this pair will return to a level closer to the mean.
Good luck! If you'd like to see the full version of this pair, visit our Pair Tool (completely free) and gives a really nice statistical, fundamental, and graphical output.
Happy trading,
Phil
phil@catalystcorner.com
The graphical representation of the this pair was generated from the Pair Trading Tool at Catalyst Corner. Both the Pair Tool and site membership are completely FREE.
Catalyst Corner is a financial website that provides FREE in-depth researchs on comapnies with significant milestones or "catalysts" coming up in the near-term.
Disclaimer: The information disseminated by Catalyst Corner ("Catalyst", "us", or "we") is for informational purposes only, and is neither a solicitation to buy nor an offer to sell securities. We do not undertake or purport to render any investment advice or recommendations for the buying and selling of securities.
Disclosure: No positions
Fundamental Commentary
BP's issues in the Gulf finally appear to be stabilizing, although the situation remains extremely fragile.
So far, the latest estimate on BP's oil spill tab is 3.2 billion - though this number is likely to increase as claims continue to go out. However, this is nowhere near the $20 billion that BP set aside last month for the purpose of paying claims related to the spill.
Even more, BP's standby loan has rapidly increased to $9 billion as more banks agree to participate in loans to help BP pay claims related to the spill. Amongs the banks participating: Barclays, BNP Paribas, Citigroup, Banco Santander, HSBC, RBC, RBS, and Societe Generale.
The stance by these banks helps assuage the possibility of bankruptcy, especially caused by issues of liquidity.
Furthermore, "Libya's top oil official called BP a bargain, recommending that the nation's sovereign wealth fund invest in the oil giant's battered stock even as it continues to reel from its disaster in the Gulf of Mexico." (WSJ)
BP also announced that they are likely to "kill" the Macondo well by mid-August, ahead of the previously expected schedule.
BP shares have dropped 49% since the April 20 disaster that sparked the worst oil spill in recent history.
Statistical Commentary
I recently read an article that claimed that the technicals on BP mean nothing - news is the only thing moving this stock.
For the past few weeks, I think he was correct. But this trend may be changing, as traders pick up on how appealing BP's technicals are becoming.
You can see the enormous collapse that began in about May and has continued through June. However, in recently the trend appears to be reversing with BP gainly sharping relative to the S&P 500.
It looks like its poised to continue its gains, especially with the fundamentals starting to stabilize.
The pair is trading in the 5.61% percentile and is 3.15 standard deviations from the mean.
Our Pair Trading Tool puts the target move at 68.21%, a gain that would only come to fruition if BP rebounds closely to its pre-spill price.
If you believe in the principle of mean convergence, it is reasonable to expect this pair will return to a level closer to the mean.
Good luck! If you'd like to see the full version of this pair, visit our Pair Tool (completely free) and gives a really nice statistical, fundamental, and graphical output.
Happy trading,
Phil
phil@catalystcorner.com
The graphical representation of the this pair was generated from the Pair Trading Tool at Catalyst Corner. Both the Pair Tool and site membership are completely FREE.
Catalyst Corner is a financial website that provides FREE in-depth researchs on comapnies with significant milestones or "catalysts" coming up in the near-term.
Disclaimer: The information disseminated by Catalyst Corner ("Catalyst", "us", or "we") is for informational purposes only, and is neither a solicitation to buy nor an offer to sell securities. We do not undertake or purport to render any investment advice or recommendations for the buying and selling of securities.
Disclosure: No positions