2 Oil Stocks for Option Buyers Before Earnings

HAL and HES stocks have exceeded volatility expectations in the past

by Andrea Kramer

Published on Jul 16, 2018 at 2:51 PM
Updated on Jun 24, 2020 at 10:16 AM

Energy stocks are getting hammered today, as oil prices continue to slide. However, Halliburton Company (NYSE:HAL) and Hess Corp. (NYSE:HES) could present an opportunity for short-term option buyers. Both stocks tend to exceed options traders' volatility expectations, and their near-term options remain attractively priced, even with earnings on the horizon.

Specifically, HAL and HES recently appeared on our list of 25 Ideas for Option Buyers This Earnings Season, due to their elevated Schaeffer's Volatility Scorecard (SVS) readings ahead of earnings. Halliburton is expected to report its quarterly results on Monday, July 23. The equity's SVS sits at 97 out of a possible 100, meaning the shares have made bigger-than-expected moves on the charts in the past 12 months, relative to what the options market has priced in.

In addition, HAL's Schaeffer's Volatility Index (SVI) of 29% is in just the 35th percentile of its annual range. This indicates that near-term options are still pricing in relatively modest volatility expectations, even with earnings one week out.

On the charts, Halliburton shares are down 1.5% to trade at $44.68. The stock has struggled since its May peak just shy of $55, and has surrendered 12% in the past three months. What's more, HAL is staring up at its 200-day moving average, which acted as a foothold earlier this year but could now serve as resistance.

HAL stock chart july 16

Should the oilfield giant report weak earnings next week, a flood of analysts could exit the bulls' corner. Despite HAL's weakness on the charts of late, 16 out of 18 brokerage firms maintain "strong buy" opinions, leaving the door wide open for potential downgrades. Likewise, price-target cuts could also hurt HAL. Currently, the average 12-month price target among analysts is $60.74 -- a premium of nearly 36% to the stock's current price.

Hess stock has surrendered 4.1% to trade at $63.84 today. However, the equity could find a foothold in its 50-day moving average, which contained the stock's pullback in mid-June. HES shares have performed much better than HAL's in 2018, with the security up 34% year-to-date, and fresh off a two-year high of $71.14 on July 10.

HES stock chart july 16

Hess is expected to report second-quarter earnings on Wednesday, July 25. Ahead of the event, the security sports an SVS of 93, and its SVI of 35% is in just the 29th percentile of its annual range. In other words, HES' near-term options look attractive right now.

While most analysts remain bullish on underperforming Halliburton, the brokerage crowd remains skeptical of outperforming HES. Despite the stock's recent quest for new highs, 10 out of 15 analysts offer up icy "hold" or "sell" recommendations. Hess shares popped higher after their April earnings report, and another beat could fuel a wave of upgrades.


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