Buyers pressed their advantage on Wall Street Monday, sending equities soaring across the board. Nowhere was their influence felt more than the beaten-down, left-for-dead energy sector. Short sellers who overstayed their welcome in energy stocks are finally receiving their comeuppance after months of easy money.
The Energy Select Sector SPDR (ETF) (XLE) is up an impressive 8.5% from Friday’s lows alone and has now vaulted back above its 50-day moving average for the first time since May. Top holdings Exxon Mobil (XOM) and Chevron (CVX) are rocking, but the component really catching my eye is ConocoPhillips (COP).
The Houston-based exploration and production company scored a resounding technical victory with this week’s gusher. ConocoPhillips stock bounded above both the declining 50-day moving average and the near-term resistance zone of $50, which has been hampering the stock’s recovery efforts for months.
ConocoPhillips stock also notched a trio of accumulation days over the past week suggesting heavy institutional accumulation. If you’ve been looking for an excuse to begin scooping up energy stocks on the cheap look no further than this week’s marked changed in character.
With ConocoPhillips up so much in the past few days I wouldn’t be surprised to see a bit of backing and filling in the coming days as tactical traders take profits following this week’s rally. With the trend now pointing higher, consider pullbacks an attractive buying opportunity for ConocoPhillips stock.
The ConocoPhillips Trade
Despite a continued decline in implied volatility for ConocoPhillips stock options, prices remain elevated enough to merit short premium plays. If you’re banking on additional upside in COP stock price over the coming month consider selling a Nov $50/$47.50 put spread for 64 cents or better.
The max reward is limited to the initial 64 cents credit and will be pocketed if ConocoPhillips stock sits above $50 at November expiration.
The max risk is limited to the distance between strikes minus the net credit, or $1.86, and will be forfeited if ConocoPhillips recedes back below $47.50 at expiration. By risking $1.86 to make 64 cents, the bull put spread offers an impressive 34% return on investment.
At the time of this writing Tyler Craig owned neutral option positions on XLE.
