Energy Stock Ripe for Bearish Options Trade

EOG is trading below several layers of potential resistance

Research Dept.
Dec 18, 2018 at 10:25 AM
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    Energy stock EOG Resources Inc (NYSE:EOG) has struggled since its mid-October highs near $133.50, down more than 25%. A negative earnings reaction in early November only exacerbated headwinds for the shares, with the Nov. 1 pre-earnings close creating a stiff ceiling in recent weeks. What's more, a recent rejection at the 40-day moving average sent EOG tumbling below the round century mark, and an unwinding of optimism could lead to bigger losses for the shares.

    eog daily chart dec 14

     

    In fact, 29 of 38 analysts maintain a "buy" or better rating on the petroleum refiner, even with its nearly 11% year-to-date deficit. This puts the shares at risk of downgrades, which could spark more selling.

    Elsewhere, short sellers have been ramping up their exposure, with short interest surging 42.3% in the two most recent reporting periods. There's still room on the bearish bandwagon, though, considering these bearish bets account for just 2% of EOG's available float.

    Plus, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.00 ranks in the 71st annual percentile, meaning short-term traders are more put-heavy than usual. Put open interest is stacked down to the 85 strike in the January 2019 series, which could serve as a magnet for the shares in the near term.

    Subscribers to Schaeffer's Weekend Trader options recommendation service received this EOG commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.


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