Outperforming Oil Stock Set to Bounce Off Key Trendline

Options traders have been heavily bearish toward WLL during the past two weeks

Managing Editor
Jul 6, 2018 at 11:12 AM
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Shares of oil concern Whiting Petroleum Corp (NYSE:WLL) are moving higher today, resuming their long-term uptrend just one day after receiving a price-target hike at SunTrust Robinson to $70 from $65. The energy name has been soaring up the charts since late February, when a slimmer-than-forecast quarterly loss triggered a bull gap.

WLL most recently touched a two-year high of $56.47 on June 22, and has surged 157% over the past 12 months. At last glance, the energy stock is up 0.7% at $51.21.

However, during the past week of trading, Whiting Petroleum stock has pulled back to within one standard deviation of its 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, this retreat could be a buying opportunity for the stock. 

Per White, there have been eight other times over the last three years where WLL has pulled back to this trendline after trading above it for a significant length of time. Following those eight prior signals, the stock went on to average a gain of 4.42% over the next month. 

Daily Chart of WLL Since December with 40 MA

In the options pits, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows WLL's 10-day put/call volume ratio of 1.10 in the 98th percentile of its annual range. This suggests that over the past two weeks, puts have been bought to open over calls at a near-annual high pace.

Continued short-covering activity could help support another 40-day bounce for Whiting stock. Following a 9.1% decline in short interest over the two most recent reporting periods, these bearish bets still account for a healthy 15.7% of the stock's float.

What's more, options are attractively priced for Whiting Petroleum stock, per its Schaeffer's Volatility Index (SVI) of 50%, which ranks in the low 16th annual percentile. This ratio suggests short-term calls and puts have priced in lower volatility premiums only about one-sixth of the time during the past year.

Plus, the security has consistently rewarded premium buyers over the past year. This is based on WLL's Schaeffer's Volatility Scorecard (SVS) of 86 out of a possible 100, which indicates the equity has regularly exceeded the volatility expectations priced into its options.

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