How Option Bulls Are Betting On These 4 Energy Stocks

Option bulls are taking a chance on Kinder Morgan Inc (NYSE:KMI), Continental Resources, Inc. (NYSE:CLR), ConocoPhillips (NYSE:COP), and Occidental Petroleum Corporation (NYSE:OXY)

Dec 22, 2015 at 2:35 PM
facebook twitter linkedin


Energy stocks are supporting the broader market today, and on a closer look, it appears option traders are betting on extended gains from several of today's outperformers. Four names worth mentioning are Kinder Morgan Inc (NYSE:KMI), Continental Resources, Inc. (NYSE:CLR), ConocoPhillips (NYSE:COP), and Occidental Petroleum Corporation (NYSE:OXY). Below we'll take a closer look at how the options activity stacks up on these surging energy stocks.

Between oil's longer-term decline and negative analyst attention, it's been a dreadful quarter for KMI, which has plummeted 43.6%, and hit a record low of $14.22 yesterday. The stock has shot higher today, though, gaining 3% at $15.59. While strength in crude is likely the biggest catalyst, the shares have also been drowning in oversold territory for some time, meaning they may have been due for a short-term rally, regardless. 

No matter the reason, some traders are expecting the energy stock's upside to continue. This afternoon, call volume is accelerated, thanks to heavy interest in the weekly 1/8 16 strike. With International Securities Exchange (ISE) data confirming buy-to-open activity here, speculators anticipate Kinder Morgan Inc will top $16 in just over two weeks, since the contracts expire at the close on Friday, Jan. 8. 

As for CLR, it's given back one-fourth of its value this quarter, and that's even including today's 8.2% surge to hit $21.64 -- though the stock fell out of the gate to a five-year low of $19.60. Amid today's price action, the shares have found themselves on the short-sale restricted list. 

Option activity is still lively, though, with calls crossing at four times the expected intraday pace. By far the most popular option is the January 2016 22.50-strike call, which is being bought to open. In short, traders are betting on Continental Resources, Inc. to keep rolling higher ahead of front-month options expiration at the close on Friday, Jan. 15. 

Year-to-date, COP has declined by roughly 33%, with the stock soundly rejected by its 100-day moving average earlier this month. However, today shareholders are enjoying a 2.9% gain that has the energy stock at $46.38.

ConocoPhillips -- which earlier confirmed it's sold its 50% stake in a Polar Lights joint venture, marking an official exit from Russia -- is also seeing accelerated call activity, with calls outpacing puts by a nearly 3-to-1 margin. The January 2016 50-strike call is leading the way by far, and it appears traders are initiating fresh long positions. 

Lastly, OXY is up 2% at $67.46, lowering its year-to-date slide to 16.3%. It looks like traders are placing upside bets on Occidental Petroleum Corporation by buying to open the weekly 12/24 67-strike call. This means bulls expect extended gains from the commodity stock through market close at 1 p.m. ET this Thursday. 

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners