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Three-way play in Plains Exploration

Chris McKhann (chris.mckhann@optionmonster.com)

A large combination trade dominates the option volume in Plains Exploration & Production today.

PXP is down 1.3 percent to trade at $40.38, in the middle of its 2012 range. Shares of the independent oil and gas company near $30 in late June, their lowest level since last October. The stock traded above $46 for the first half of March.

More than 62,000 PXP options have changed hands today, compared to a daily average of 3,600 in the last month. The volume was almost entirely in a three-way combination trade that is very similar to one we just saw in Newfield Exploration .

The trader bought 15,000 September 42 calls for $1.35 while selling 30,000 September 47 calls for $0.22 and 15,000 September 36 puts for $0.51, according to optionMONSTER's systems. The volume at all three strikes was well above open interest.

The combination trade cost $0.40 to open, the amount that is at risk if PXP remains between $36 and $42. The maximum gain would come with the stock around $47, though the trader is effectively short shares above that level. The short puts also mean that the the trader is willing to buy the stock if it trades below $36. (See our Education section)

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