Why does Boone Pickens buy long calls and puts in the market?

Question

He said he sold a $75 call and bought a $60 call and I think a put too on oil....

Answer 1

The price isn't relevant to your question, but what he is probably doing is a stradle. If oil moves a lot either way he can profit. His risk is only what he has so far paid and no more, yet he can make a lot if oil moves significantly in one direction. One of his positions won't be profitable, but the profit of the profitable position will more than pay for the loss of the unprofitable one.

A speculator does this when a large market move is expected but the direction of the move is unknown. And one's risk is precisely defined--one can only lose the price paid for both options.

Answer 2

If you are selling a call at $75 and buying a call at $65, that means you will profit when oil is greater than $60 but less than $75.

This is called a call spread.

Buying a put then, would also produce gains if oil fell.

I guess you'd need to know the strike on the put to understand how it fits in with this strategy.