Harvesting Big Oil Cheaply

Big Oil names look ripe to be harvested again so take out your pitchfork and load up the barn. Here is one that fits the bill and a way to play it that works even for the gentleman farmer.

Chevron Corp, $CVX, Weekly

Chevron Corp, $CVX, is breaking out of an ascending triangle. The target for the move is to 127.50. It has good technical indicators as well with a Relative Strength Index (RSI) that is bullish and rising and a Moving Average Convergence Divergence (MACD) indicator that is positive and growing. Finally the Andrew’s Pitchfork shows the price being attracted to the Median Line (centerline). It took 8 months for this pattern to complete so the move could take a while. As a trade idea consider buying the June 110/125 Call Spread to play it. This cost about $5.50 late Wednesday and would be your maximum downside risk. It offers a reward to risk ratio of 2.72:1. But it also only uses 5% of the capital that buying the stock outright would use. If you have margin to use for that duration consider cutting the cost by selling the June 87.50 Put for about $2 to cut the cost. It gives protection to the bottom of the triangle pattern and below that on June Expiry you would be Put the stock. Even as a cash covered put (full cost margined) this uses only 83% of the capital buying the stock would. You give up the dividend in this trade compared to owning the stock but that is a small sacrifice for the available return.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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