The Stock for Near-Term Oil Bears

DVN stock has recently pulled back with oil prices

Nov 16, 2017 at 2:25 PM
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It's been a tough week for oil prices, which appear to be on track to snap their five-week winning streak as supply and demand woes resurface. And while crude futures are stabilizing today, the damage has already been done to energy stocks. Devon Energy Corp (NYSE:DVN), for instance, is on track to log its first weekly loss since Oct. 20. If past is precedent, DVN could be headed even lower next week -- and with options attractively priced, it could be a prime time to buy short-term puts on the oil-and-gas name.

Unlike retailers, Devon Energy has been one of the worst stocks to own on the S&P 500 Index (SPX) during Thanksgiving week. Looking back over the past 10 years, specifically, DVN stock has averaged a Thanksgiving week loss of 2.1%, and has turned in a positive performance just three times. The equity hasn't notched back-to-back weekly losses since mid-August.

Options traders looking for a repeat of history are in luck. The stock's Schaeffer's Volatility Index (SVI) of 33% ranks lower than 75% of all comparable readings taken in the past year, while it's 30-day at-the-money implied volatility of 31.2% rests in the 23rd annual percentile -- indicating low volatility expectations are being priced into DVN's short-term options.

It looks like some bargain-hunting options bears are already striking, too. The equity's December 37 put has seen one of the biggest increases of open interest in the past two weeks, with almost 3,100 contracts added. Data from Trade-Alert points to buy-to-open activity here, meaning traders expect DVN to sink below $37 by expiration at the close on Friday, Dec. 15.

The last time Devon Energy traded south of here was in late October, just before a bull gap sent the energy shares back above their 200-day moving average for the first time since April. Nevertheless, the security was turned back near $14.50 last week, and is now trading back below its 30-month moving average -- a trendline not conquered on monthly closing basis since May 2015.


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