Fire Sale on This Oil Stock Flashing 'Buy'

Higher highs could be in store for WLL, if history is any indicator

May 17, 2018 at 1:34 PM
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Oil prices have been hot lately, amid concerns about Iran sanctions. As such, several energy stocks have been on fire, and Whiting Petroleum Corp (NYSE:WLL) is definitely no exception. WLL stock has more than doubled in less than three months, yet near-term options remain attractively priced. What's more, Whiting stock's rally could be far from over, if recent history is any indicator, suggesting now could be the time to buy calls.

WLL shares notched a new annual high of $51.93 today, and were last seen 3.9% higher to trade at $51.59. Since skimming the $22 level in mid-February, the equity has surged 136% atop the support of its 10-day moving average. So far in May, Whiting stock has advanced more than 26%, already pacing for its best month since November 2016.

WLL stock chart

As alluded to earlier, despite the security's stellar advance, near-term options are relatively cheap. The equity's Schaeffer's Volatility Index (SVI) of 46% sits lower than just 2% of all other readings from the past year, suggesting short-term options are pricing in relatively low volatility expectations for WLL at the moment.

Against this backdrop, for the past 10 days, WLL has been at the top of our internal list of stocks trading near 52-week highs while simultaneously sporting an SVI in the bottom 20% of its annual range. The last and only other time this options signal flashed (looking back to 2008), Whiting Petroleum shares went on to skyrocket another 25.8% in the subsequent month. A similar pop from current levels would put the stock around $64.90 -- territory not charted since late 2015.

Today, WLL has already seen 37,000 calls cross the tape -- three times its average intraday volume, and roughly nine times the number of puts exchanged. It looks like some traders are rolling their bullish positions higher in the wake of the energy stock's advance, liquidating now in-the-money May 49 and weekly 5/25 45-strike calls for May 51.50 and weekly 5/25 47-strike calls, respectively, per Trade-Alert.

Outside of the options pits, BMO Capital upped its price target on WLL to $55 from $50 today. While several analysts have boarded the bullish bandwagon in recent weeks, there's still plenty of room for more. The average 12-month price target of $46.76 represents a nearly 10% discount to Whiting Petroleum stock's current price, for instance. Further, eight of 21 brokerage firms maintain tepid "hold" ratings, leaving the door wide open for potential upgrades to lure more buyers to the table.


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