3 Oil Stocks for Frugal Option Buyers

Whiting Petroleum Corp (NYSE:WLL), Chesapeake Energy Corporation (NYSE:CHK), and ConocoPhillips (NYSE:COP) are on the mend after a Doha-related dip

Apr 18, 2016 at 12:32 PM
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After spending recent weeks treading higher, crude oil is backtracking on news that Sunday's meeting of global oil producers -- excluding Iran -- in Doha, Qatar, failed to produce an agreement that would freeze crude production. May-dated crude oil is off 1.8% at $39.63 per barrel, though many oil-and-gas stocks are off their intraday lows, including Whiting Petroleum Corp (NYSE:WLL), Chesapeake Energy Corporation (NYSE:CHK), and ConocoPhillips (NYSE:COP) -- all of which could present bargains for near-term option buyers.

  • WLL fell as low as $9.60, landing on the short-sale restricted list, but has since reversed course to sit 1.3% higher at $10.85. WLL received price-target hikes at Barclays and Cowen and Company this morning, to $13 and $19, respectively, helping to offset its oil-related losses. The stock has been moving higher since late February, with help from its formerly restrictive 30-day moving average. On the whole, analysts have been relatively optimistic, with 57% rating WLL a "buy" or better. And near-term option traders have been unusually call-heavy. The equity's Schaeffer's put/call open interest ratio (SOIR) of 0.47 sits lower than 97% of the past year's readings. Today, options are trading at a slightly accelerated clip, with the weekly 4/22 11-strike call most popular. It may also be a prime time to buy WLL's short-term options, as the security's Schaeffer's Volatility Index (SVI) of 93% is in just the 8th percentile of its annual range, meaning near-term options are pricing in historically low volatility expectations at the moment. Whiting Petroleum Corp (NYSE:WLL) is due to report quarterly earnings next week.
  • CHK fell as low as $5.49, but has trimmed its deficit to 0.3% to sit at $6.03. The stock has been on the mend from its mid-February record low, and recently bounced off of support at its previously resistant 40-day moving average. Last week, however, the shares ran into stiff resistance at their declining 200-day moving average -- a trendline they have not cleared on a closing basis since last September. Analysts remain wary of the stock, with only one out of 20 rating CHK better than a "hold." Meanwhile, short sellers have been backing off -- short interest on the security fell by 26% during the most recent reporting period, but still represents more than one-fourth of CHK's available float. And option traders have been relatively optimistic of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Chesapeake Energy Corporation's (NYSE:CHK) 50-day call/put volume ratio of 1.14 sits higher than 72% of the past year's readings. CHK's SVI of 99% is in the bottom third of its annual range, suggesting historically attractive near-term option premiums right now.
  • COP began the session nearly 4% lower before clawing back into positive territory, up 3.5% at $44.77. The stock has been moving higher since early March with support from its 30-day moving average, leading short sellers to abandon their positions. Specifically, short interest fell by 45% during the past month and now accounts for only 1.6% of COP's total float. Near-term options traders have been more put-heavy than usual, with the stock's SOIR of 1.20 ranking higher than 82% of all readings in the last 12 months. And the equity's short-term options should also be a great value at the moment, with COP's SVI of 38% sitting in the 6th percentile of its annual range -- indicating relatively low volatility expectations being priced in. Meanwhile, ConocoPhillips (NYSE:COP) has a Schaeffer's Volatility Scorecard (SVS) of 96, meaning the shares have tended to make outsized moves in the past year, relative to what the options market has priced in.

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