This Oil Stock Buy Signal Has Never Been Wrong

It's a prime time to purchase short-term PBF options, too

Sep 4, 2018 at 11:32 AM
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Oil prices are popping today as Tropical Storm Gordon prepares to make landfall on the Gulf Coast later today, possibly as a hurricane. One energy name benefiting from sector tailwinds is petroleum refiner PBF Energy Inc (NYSE:PBF), with the shares last seen trading up 2.5% at $53.19, fresh off a record high of $53.72. And if history is any guide, it might not be too late for bulls to jump on PBF stock.

Specifically, PBF's Schaeffer's Volatility Index (SVI) of 31% ranks in the 10th percentile of its annual range. This indicates short-term options have priced in lower volatility expectations just 10% of the time within the past year.

What's more, according to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been just two other times PBF has been trading within 2% of a new 52-week high while near-term options have been so cheap, from a volatility perspective. Following these previous signals, the oil stock was up 17.07%, on average, one month later, with both returns positive.

A round of well-deserved bullish brokerage notes could also create tailwinds for PBF stock, considering six of the 12 analysts in coverage maintain a "hold" or worse recommendation. Plus, the average 12-month price target of $53.15 is in line with current trading levels.

Plus, it's worth noting the stock has consistently rewarded premium buyers over the past year. This is based on its Schaeffer's Volatility Scorecard (SVS) of 99 out of a possible 100, which means the shares have tended to make outsized moves relative to what the options market has priced in.

From a technical perspective, today's positive price action is just more of the same for the energy shares. Heading into today's trading, PBF Energy stock was up 46% year-to-date. While the security's 80-day moving average served as a springboard in mid-July, its 30-day moving average caught a mid-August pullback. And PBF is now trading above its previous highs in the $52 range, which could serve as support going forward.

pbf energy stock chart on sept 4

 

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