How Traders Turned a Quick Profit After EOG Earnings

EOG reported first-quarter revenue that came in below analysts' estimates

by Lillian Currens

Published on May 9, 2019 at 2:15 PM

Subscribers to Schaeffer's Option Advisor newsletter managed to double their money in just a matter of days with the EOG Resources Inc (NYSE:EOG) July 105 Put. Below, we will dive into why we anticipated a downside move from the oil concern, and how the options trade unfolded.   

When we first recommended the put option on Friday, April 26, EOG was struggling on the charts, with a rebound attempt off its mid-March lows running into familiar resistance in the $108-$109 region -- home to the stock's 200-day moving average. At the time of our recommendation, we thought it was an opportune time to play puts on a strong bounce, within the context of a longer-term downtrend, as the shares were overbought.

EOG had been exhibiting a rare call-skew setup from short-term traders, with the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.56 ranking in the 26th annual percentile. Specifically, a large amount of open interest was detected at the May and June 105 calls, which indicated an options-related ceiling for the shares in the near term.

Further, 17 of 23 covering brokerage firms sported "buy" or better ratings, leaving plenty of room for future downgrades to pressure EOG shares. Plus, shorts had been building their positions since last July, yet short interest only accounted for 2% of the equity’s total available float. This could create more downside for EOG, as these bears continue to climb on board.

EOG Resources continued to drop after our late-April recommendation, stringing together four consecutive losses and hitting new lows on May 2. A surge in put open interest ahead of the stock's May 2 earnings likely created some headwinds on the charts. Less-than-impressive first-quarter revenue helped the underlying asset bottom out at monthly lows, too, allowing options traders to close the position and lock in a 100% profit in only four days. 

chartEOG May 9


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