Blue-Chip Stock Looks Like Solid Bet for Options Bulls

There is still plenty of room for upgrades among the brokerage bunch

Aug 23, 2022 at 10:29 AM
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Blue-chip gas and energy name Chevron Corporation (NYSE:CVX) is forming a pennant pattern on the charts, and a few weeks back the stock moved back above its 20-week exponential moving average. Now, the equity is finding support off this trendline, which has typically been a bullish signal in the past. Chevron stock also recently found support at its year-to-date anchored volume weighted average price (AVWAP) after recapturing this level in early August. 
Drilling down, peak calls for August expiration, which have been capping the stock's price of late, expired on Friday. CVX could now see a move higher with the next peak level of open interest sitting at $175. 
There's still room for upgrades, too. Of the 16 in coverage, seven analysts still consider the equity a "hold" or worse. 
An unwinding of pessimism among options traders could also create tailwinds. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity sports a 50-day put/call volume ratio that sits in the 89th percentile of its annual range. 
Options look like a prudent play right now for those wanting to speculate on Chevron stock's next move higher. The security's Schaeffer's Volatility Index (SVI) of 29% stands higher than just 29% of annual readings, implying these contracts are reasonably priced at the moment. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) sits at 87 out of a possible 100. This means CVX has tended to outperform options players' volatility expectations of late. 
Lastly, our recommended call has a leverage ratio of 6.8 and will double in a 14.5% rise in the underlying stock. That's approximately the jump it would take for CVX to retest its highs.
Subscribers to Schaeffer's Weekend Trader options recommendation service received this CVX 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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