Call Options Or Put Options On Chevron (CVX)?

| August 28, 2013 | 0 Comments

Chevron OptionsChevron (CVX) is one of the world’s largest oil companies.  The company is involved in every aspect of oil and gas production, from exploration and development to transportation and refining.

CVX shares are trading at $118.81 and are down 5% for the month.  The stock’s up 21% from the 52-week low of $98.27 and is just 6% below the 52-week high of $126.78.

Is this an opportunity to buy call options on CVX with crude oil trading at around $110 a barrel?  Or should you buy put options on CVX due to rapidly increasing alternatives to using gasoline?

The bulls make a convincing argument…

Crude oil prices are trading around $110 per barrel for the first time in roughly two years.  The flare up in the Middle East is the catalyst behind the higher move.

Higher oil prices are good for big oil companies like CVX because it increases margins.  And of course, higher margins equal more profits.

So far, CVX hasn’t seen a big spike in its stock price because of higher crude oil prices.  So, now could be a good time to get in before the stock catches a bid.  In fact, as of this writing, the shares were still trading below the 50-day moving average – a sign that a big move could be coming.

But the bears have a compelling case as well… 

Oil prices may be good for the margins of big oil companies, but high gas prices are not good for the consumer.  As such, gasoline use tends to decrease dramatically as prices rise.

Drivers are increasingly finding transportation alternatives when gas prices get high.  Options include public transportation, car pooling, biking, hybrids, electric vehicles, and even natural gas powered vehicles.

Of course, lower gas consumption really hurts the profits at companies like CVX.  And, with all the issues in the Middle East, there will be even more pressure to find alternatives to crude oil.

So are high crude oil prices good for CVX or will lower gasoline demand hurt the company’s profits?

If you think the bulls are right, take a look at buying the CVX September $125 calls for around $0.55.

If you think the bears are right, take a look at buying the CVX September $120 puts for around $1.25.

Yours in Profit,

Gordon Lewis

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Category: Call Or Put Options?

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also editor of our dynamic theme-based options trading service, Advanced Options Adviser, and one of the key analysts behind the highly successful Options Trading Wire.