In a follow-up to a very recently published article of mine, I felt it only necessary to share some positive thoughts regarding the BP situation from Bruce Lanni of Nollenberger Capital Partners. Consider the following analysis:
* Total expenses are estimated at $30 billion (approximately $6 billion via the cleanup and roughly $24 billion from punitive and civil claims), well under several estimates of $50-100 billion!
* BP has only a 65% interest in the situation (what about Anadarko, Transocean, and other potential players?)
* The dividend will potentially not be cut, but only suspended for one quarter, then resume
* Two relief wells are currently being drilled and once finalized, will seal the wrecked well
* …And I quote, “Bankruptcy is not even a remote possibility; the U.S. Government has a better chance of becoming insolvent before BP”
* The capture rate can maybe rise to 75-80% by as early as next week
* BP has not been deceiving us (we must not confuse deception with ambiguity that comes with operations 5,000 feet below sea level)
As I have actively wrote about put options on the VIX here and here, when the oil spill fiasco concludes, consider there will be one less detriment to the U.S. equity markets. Investors will be more willing to buy underlying stock rather than options, where committing capital is less of a burden. The VIX, also known as the investor fear gauge, can then possibly revert to its mean of roughly 21 over time (historical data beginning in January 2004), after closing at 28.79 one week before options expirations.
Reasons that further compliment the argument for a decline in the VIX do not pertain to this article.
Disclosure: Long VIX puts at time of writing.
