2 Red-Hot Oil Stocks With Cheap Options

Both APC and CPE touched annual highs today

Managing Editor
May 9, 2018 at 12:10 PM
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In the wake of President Donald Trump's decision to pull the U.S. out of the Iran nuclear deal, oil prices have skyrocketed. At last check, June-dated crude was up 2.9% at $71.07 per barrel. Oil stocks are enjoying the bounce, including Anadarko Petroleum Corporation (NYSE:APC) and Callon Petroleum Company (NYSE:CPE), with both equities recently sending up "buy" signals.

Anadarko Petroleum Stock Could Hit New Highs

At last check, Anadarko Petroleum stock was up fractionally at $67.05, and earlier touched an annual high of $68.84. APC shares have added 25% so far in 2018, guided higher by their rising 20-day moving average since early April.

Daily APC Chart

The stock recently appeared on Schaeffer's Senior Quantitative Analyst Rocky White's list of stocks that are currently trading near a 52-week high, but also sport a low Schaeffer's Volatility Index (SVI). More specifically, the stock currently sports an SVI of 32%, ranking in the 8th percentile of its annual range.

This suggests that near-term options are pricing in relatively low volatility expectations at the moment. Since 2008, there has been just one other time APC stock was flirting with a new high and had an SVI in the bottom 20% of its annual range. After this instance, the shares went on to gain 10.5% over the next month. A similar pop from current levels would place the equity above the $74 region for the first time since August 2015.

It's also worth noting that APC sports a Schaeffer's Volatility Scorecard (SVS) reading of 98 out of 100. This lofty ranking means the equity has tended to register bigger price swings than its options premiums have priced in over the past 12 months. 

Callon Petroleum Stock Burns Shorts

Callon Petroleum stock also found itself on White's list of stocks that are rading near an annual high, but also have deflated implied volatilities. Its SVI of 41% ranks in the 15th percentile of its annual range. Since 2008, there have been just two other times CPE stock was flirting with a new high and had an SVI in the bottom 20% of its annual range. After this instance, the shares went on to gain on average 6.9% over the next month, and were positive both times.

Looking at the charts, CPE stock is currently up 0.8% to trade at $14.30, earlier scoring an annual high of $14.65. CPE shares have gained 18% in 2018, and have been guided higher by their ascending 30-day moving average since early March. Plus, the stock has outperformed the broader S&P 500 Index (SPX) by nearly 32 percentage points during the past three months.

Daily CPE Chart

A short squeeze could provide more tailwinds for the surging oil stock. Short interest fell by 4.2% during the two most recent reporting periods, yet the 41.38 million shares sold short represents more than 20% of CPE's total available float. At the stock's average daily trading volume, it would take more than nine days for shorts to cover their position.

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