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Option Traders Think Chevron Has More Room to Run

Call volume is accelerated on CVX today, following an upwardly revised quarterly outlook

by 1/11/2013 12:31 PM
Stocks quoted in this article:

Chevron Corporation (NYSE:CVX - 111.94) is trading higher in today's session, and bullish option players are taking notice. More than 8,900 calls have crossed the tape so far, almost tripling their average intraday volume. CVX's March 120 call has emerged as the day's most active strike, where north of 2,300 contracts have traded. Almost all of these have gone off at the ask price, and implied volatility was last seen higher, indicating a portion of today's volume is of the buy-to-open variety.

In order for these out-of-the-money calls to be profitable, traders need CVX to topple the $120 mark by the closing bell on Friday, Mar. 15. More specifically, by purchasing the calls for a volume-weighted average price (VWAP) of $0.16, the stock needs to finish above breakeven at $120.16 (the strike plus the VWAP) by March expiration. Should the equity fail to rise 7.3% from its current perch, the most today's call buyers stand to lose is the initial premium paid. With implied volatility at this strike currently deflated relative to CVX's 60-day realized (historical) volatility (12% vs. 20%), speculators can rest easy knowing they scooped up these bullish bets at a bargain.

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals option traders have been fairly optimistic toward CVX in recent months. The stock's 50-day call/put volume ratio of 1.26 ranks higher than 64% of other such readings taken in the past year, implying calls have been bought to open over puts at a faster-than-usual clip over the last 10 weeks.

On the charts, the Dow component has put up a modest 6.5% year-over-year return. In the past couple of months, though, the stock has been moving steadily higher, bouncing more than 11% off its most recent low of $100.66, which it tagged on Nov. 15. As mentioned, CVX is adding to these gains in today's session, with the stock up 1.3% at last check, after providing an optimistic outlook to its fourth-quarter profit.

Chevron is scheduled to unveil its full fourth-quarter results before the market opens on Friday, Feb. 1. According to Thomson Reuters, analysts are calling for a per-share profit of $3.01.


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