ConocoPhillips Stock Boasting Ample Support

Short covering could generate tailwinds

Apr 5, 2024 at 3:19 PM
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Subscribers to Schaeffer's Weekend Trader options recommendation service received this COP 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.

Oil and gas stock ConocoPhillips (NYSE:COP) just broke out above its October highs, putting it at a fresh 52-week peak. This high also comes amid low volatility, per its Schaeffer’s Volatility Index (SVI) of 19%, which sits in the low 1st percentile of its annual range.
 
This has been a bullish combination for COP historically, as it’s seen four similar signals over the past five years, after which the stock was higher one month later each time, averaging a solid 11.2% gain. It's also worth noting that the low implied volatility (IV) is bringing options prices lower and is below 63-day historical volatility (HV).

 

 
Plus, put traders were piling on heading into the recent rally, while calls were liquidated. Short interest has risen 56% since June 2022, putting it at an 18-month high. Since the shares have moved higher since June 2023, it is less likely to build, and short covering could generate tailwinds.
 
Due to the huge advance in recent weeks, we’ve left some time in case the shares consolidate briefly or pull back to a short-term moving average. The 10-day trendline, for example, is projected to be around the level the shares are trading at now in a week.
 
Our June call has a leverage ratio of 10.88, and will double in a 9.6% rise in the underlying shares.
  
 

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