The markets were mixed on Wednesday, which is better than expected given rising oil prices from renewed hostilities in the Middle East. While the Dow was down 1.09% on the day, the Nasdaq Composite gained 0.20%.
It could have been much worse.
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In the options market, volume was down yesterday to 58.47 million, 4.77 million below the 90-day average. Calls outnumbered puts 56% to 44%.
In terms of unusual options activity, the top option based on the Vol/OI (volume-to-open-interest) ratio was Occidental Petroleum’s (OXY) July 17 $56 call at 144.57. It was one of only two options with a ratio over 100 -- the other being a SpaceX (SPCX) Dec. 15/2028 $80 put at 119.82 -- but it wasn’t the oil and gas company’s only unusually active option yesterday.
Occidental had a total of 11, with Vol/OI ratios ranging from 144.57 to 1.67, and six expiring a week from tomorrow.
The six unusually active options expiring on July 17 are the ones I’ll focus on for today’s commentary. OXY is up more than 30% in 2026, driven by higher oil prices.
The OXY Options in Question
We have four calls, ranging from $54 to $57, all OTM (out of the money), but not by much. The four calls’ ask prices as a percentage of yesterday’s closing share price range from 0.8% to 2.2%--so, not expensive bets, which makes sense given they expire in eight days from today. The two puts are also OTM and inexpensive, but with much lower volume.
Occidental’s options volume yesterday was 258,104, 5.4 times its 30-day average and the highest single-day activity in the past three months. Further, the 0.07 put/call volume ratio could not be more bullish, so it makes sense that a lot of Occidental’s option activity yesterday would have been single-leg call trades, both long buys and Covered Call sells for existing and new shareholders.
The OXY Covered Call
For example, if you bought 100 OXY shares last December at its 52-week low of $38.80, and you sold 1 July 17 $57 call for premium income as a covered call, here’s how it looked at yesterday’s last trade.
The return on the premium income, based on the $53.59 closing price, was 0.70% [$0.37 trade price / $53.59 share price - $0.37 trade price], or 28.4% annualized [365 / 9]. That’s a reasonable return.
So, worst-case scenario, the share price hits $57 by expiration a week tomorrow, and you are forced to sell your OXY shares because the buyer called them away. Your capital gain is $18.20 [$57 strike price - $38.80 purchase price], a 46.9% return, or 80.4% annualized [12 months / 7 months * 46.9%]. Add in the premium income, and your annualized return increases to 81.8%.
If you bought shares at yesterday’s closing price of $53.59, selling the July 17 $57 call, should you be forced to sell the 100 shares, your annualized return would be even higher, up 259.6% [($57 strike price - $53.59 purchase price / $53.59) * 365 / 9]. Add in the premium income, and your annualized return increases to 287.9% [($57 strike price - $53.59 purchase price + $0.37 premium income) / $53.59) * 365 / 9].
Now let’s move on to yesterday’s multi-leg options strategies.
OXY Bull Call Spread
The Bull Call Spread is a bullish bet that the share price will rise. It involves buying a call option and selling a call option at a higher strike price. Based on yesterday’s unusually active options, the $54 call makes the most sense for the long call. You’ve got three possibilities for the short call.
Given the $57 strike has the lowest risk/reward ratio of 0.16 -- a maximum profit of $2.59 divided by a maximum loss of $0.41 -- it is the most sensible of the three possibilities.
OXY Long Ratio Call Spread
The Long Ratio Call Spread combines one short call and two long calls with the same expiration but higher strike prices. Breaking it down, it involves a Bear Call Spread -- which is selling one call short and buying one call long at a higher strike price -- combined with a long call. You’re expecting a big move over the next week or a significant increase in the implied volatility.
Based on the $54, $55, $55, and $56 strike prices, you’ve got countless combinations. The goal here is to lower the cost of the two long calls with the premium income from the short call to produce a net credit or a small net debit.
The problem with all of these combinations is that the risk/reward ratios are too high to warrant making a bet despite high profit probabilities.
Of the various combinations, selling one $55 call short and buying two $57 calls long has the lowest loss probability at 17.8%. However, like betting on a significant favorite in a horse race to finish in show (3rd), you are betting $10.11 to make a buck. To me, that seems pointless, in options or horse racing.
OXY Bear Put Spread
This last options strategy involves the two unusually active put options from yesterday.
The inverse of the bull call spread, the Bear Put Spread is a bearish bet that the share price will fall. It involves buying a put option and selling a put option at a lower strike price.
So, based on Occidental’s unusual options activity yesterday, you would buy the $52 put for $0.94 and sell the $49 put for $0.14 in premium, resulting in a net debit of $0.80. That’s also your maximum loss. Your maximum profit is $2.20 [$52 strike price - $49 strike price - $0.80 net debit]. That produces a risk/ratio of 0.36 to 1 and a return of 275%, assuming the share price at expiration is below the lower $49 strike price. You make some money between $49.00 and $51.20.
If you’re bearish on OXY (most aren’t), this is an inexpensive bet to make.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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