Some rich people think that a big company called BP will do well in the future. They are buying options to show they believe in BP. Options are like bets on how much the stock price of a company will change, and these rich people want to make money if BP's stock price goes up. Read from source...

1. In the beginning, the author claims that "smart money" is betting big on BP options, but does not provide any evidence or criteria to support this assertion. Smart money usually refers to institutional investors or experienced traders who have a track record of making profitable decisions based on fundamental analysis and market trends. However, the author does not explain how they defined smart money or what data they used to identify these large option purchases. This creates a vague and misleading impression that may confuse or deceive readers who are not familiar with options trading.

Given the recent bullish activity from smart money investors in BP options, I would recommend the following strategies for potential investors:

- Long call strategy: This involves buying a call option with a strike price below the current market price and selling another call option with a higher strike price. The goal is to benefit from the increase in the stock price above the lower strike price while limiting the risk of an adverse move. For example, one could buy a January 2024 $50 call and sell a January 2024 $60 call, collecting a premium of $3.70 per contract. The breakeven points are $46.29 and $53.70, respectively.
- Covered call strategy: This involves owning the underlying stock and selling a call option with a strike price above the current market price. The goal is to generate income from the premium received while still benefiting from potential appreciation in the stock price. For example, one could own 100 shares of BP at $45 and sell a January 2024 $50 call, collecting a premium of $3.70 per contract. The breakeven point is $48.30, and the yield is approximately 6%.
- Dividend capture strategy: This involves buying a stock just before its ex-dividend date and selling it shortly after its payment date. The goal is to benefit from the dividend income without holding the stock for an extended period. For example, BP has a quarterly dividend of $0.61 per share, payable on June 23, 2024. One could buy 100 shares of BP at $45.87 on June 20, 2024, and sell them at $45.98 on June 25, 2024, collecting a dividend of $61 per share or a return of approximately 13%.
- Risk factors: As with any investment strategy, there are risks associated with these options trading strategies. The main risks include the possibility of an unforeseen decline in the stock price, time decay, and volatility spikes. Investors should monitor their positions closely and adjust them as necessary to manage their risk exposure.