March 13th Options Now Available For Plains All American Pipeline (PAA)

Plains All American Pipeline (PAA) trades at $19.76; a put at the $18.00 strike bids $0.05, implying a $17.95 effective purchase price and a ~9% OTM put with a 75% chance to expire worthless (YieldBoost 0.28% or 2.36% annualized). A $20.00 call also bids $0.05, which would produce a 1.47% total return if called at the March 13 expiration or a 0.25% premium retained (2.15% annualized) if the covered call expires worthless (55% odds). Implied volatilities are 42% on the put and 31% on the call versus a 12-month trailing volatility of 26%, presenting modest, income-oriented option strategies rather than a directional thesis on the equity.

Analysis

Market structure: Option sellers and income-focused holders win in the near term — selling the $18 put or $20 covered call nets ~0.25%–0.28% for a ~1–2 week to one-month trade (March 13 expiry), extracting yield while underlying liquidity in PAA remains intact. Downside losers are levered upstream producers and short‑dated holders if crude volatility spikes, since midstream fees are volume‑sensitive; implied vol skew (put 42% vs call 31%) signals asymmetric tail concern priced by markets. Cross‑asset: a >15% move in WTI in 30–60 days would propagate to high‑yield spreads and PAA credit curves, pressuring equities and boosting option IV across the chain.

Risk assessment: Tail risks include a major crude price collapse (>20% in 60 days), a material pipeline incident/regulatory action, or a distribution cut — any of which could drop PAA >15% quickly and widen credit spreads >200bp. Immediate horizon (days–weeks): option decay dominates P&L; short term (3–6 months): winter flows, distribution announcements and covenant tests matter; long term (1–3 years): contract mix and capex coverage determine durable value. Hidden dependencies: bank funding & covenant thresholds, counterparty margin calls and correlation to WTI; second‑order: forced equity issuance if spreads blow out.

Trade implications: Direct actionable trades include cash‑secured sale of Mar13 $18 puts sized so max assignment ≤2–3% portfolio (cost basis $17.95), and selling $20 Mar13 covered calls against existing stock to capture 0.25% premium if comfortable capping upside. If concerned about tail risk, buy a 3‑month $17.50/$16.00 put spread as cheap insurance (limits loss while preserving upside), or alternatively sell puts and simultaneously buy further OTM puts to form a put spread to monetize IV skew. Avoid large directional levered longs until credit spreads tighten and implied vol contracts toward historical 26%.

Contrarian angles: The market may underweight PAA’s distribution resilience under stable volumes — implied vol (42% put) overshoots realized (26%), creating an opportunity to sell modestly OTM puts if you can hold 100% cash for assignment. Conversely, consensus may be complacent on credit tail events; mass put‑selling could force concentrated assignments if oil falls 15%+, causing price clustering and forced deleveraging. Historical parallel: 2016 midstream drawdown showed rapid recovery once spreads normalized; manage position sizing and stop triggers to avoid being caught in a liquidity squeeze.

Key Decisions for Investors

• Sell cash‑secured PAA Mar13 $18 puts sized so the maximum assignment equals no more than 2% of portfolio (i.e., sell up to 2 contracts per $100k portfolio). Target cost basis $17.95; close or hedge if PAA trades below $17.00 or WTI falls >15% within 30 days.
• If already long PAA, sell Mar13 $20 covered calls to capture the $0.05 premium (0.25% yield boost, ~2.15% annualized). Roll or let be called if assigned; exit covered position if PAA > $22 or distribution guidance changes unfavorably.
• Buy a 3‑month PAA downside hedge: $17.50/$16.00 put spread (limit premium) sized to cover 50–100% of your long exposure. Close if IV rises above 45% or if credit spreads tighten >100bp from current levels.
• Do not increase gross long midstream exposure >3% portfolio until PAA credit spread (or HYG‑CDX high‑yield proxy) narrows by ≥100bp and implied vol compresses toward realized vol (put IV ≤35%). Monitor PAA distribution coverage and any regulatory notices over next 60 days; reduce exposure immediately if coverage falls below 1.0x.