BP soars on record oil prices, inventory drop

BP (NYSE: BP) shares are trading higher today after the weekly US inventory report indicated a drop in supplies, while industry analysts expected a slight increase. Crude prices pushed to $132 in response, and the average gasoline prices in the US are currently a record $3.80 per gallon. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BP.

After hitting a one-year high of $79.77 in November, the stock fell through the winter to hit its one-year low of $57.85 in January before starting to rise again. BP opened this morning at $76.24. So far today the stock has hit a low of $75.86 and a high of $76.78. As of 11:10, BP is trading at $76.66, up $1.73 (2.3%). The chart for BP looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $60 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just five months as long as BP is above $60 at October expiration. BP would have to fall by more than 21% before we would start to lose money. Learn more about this type of trade here.