Trade Summary: August 22, 2016

| August 22, 2016

August 22, 2016

 

Trade Rationale

Stocks are hitting new highs, but the overall market action has been pretty tepid.  Investors are stuck in wait and see mode while they wait for vacations to end and typical Fall activity to pick up.  Still, there are always stock picking opportunities in this environment if you look hard enough.

One interesting fact I just saw is that energy stocks make us just 7% of the S&P 500.  That’s historically low… more importantly, it is generally a sign that energy is going to get a boost in the near future.  Keep in mind, sector rotation is an ever-present situation.

As such, we’re going to buy calls in two energy companies and a put in one other.

In terms of finding a good refining stock to buy, look no further than Valero Energy (VLO).  The $25 billion company hasn’t a good year, but the stock is trending in the right direction.  What’s more, the share price is trading at just 9x earnings – a very good deal.

In the area of equipment and services, it looks like a good time to buy calls on Halliburton (HAL).  Unlike Valero, HAL is actually having a great year so far.  But, the stock has recently pulled back to an important support level and could be ready for another leg higher.

On the other hand, let’s buy puts in Antero Resources (AR).  While I’m bullish on refiners and equipment/services companies, the same cannot be said for oil and gas drillers.  There’s still a severe supply glut to work through, and it could take quite a while for companies like AR to ramp up production.

 

Trade Details

#1) Buy Valero Energy (VLO) October 21st 55 Calls up to $2.30

For this trade, we’re looking for a move higher in VLO.  Our first profit point for conservative traders is at $58.  For aggressive traders, you can hold up to $62.  For risk control, the conservative exit level is $50.  Lastly, $48 is the final exit level for aggressive traders.

Valero Energy

#2) Buy Halliburton (HAL) October 21st 45 Calls up to $2.30

With this trade, we’re also looking for the stock to climb.  Our first exit point for conservative traders is at $47.  For aggressive traders, you can hold to $50.  For risk control, the conservative exit level is $40.  And, $38 is the final exit level for aggressive traders.

Halliburton

#3) Buy Antero Resources (AR) November 18th 25 Puts up to $1.60

Finally, we’re looking for a down move in AR.  Our first profit-taking exit point for conservative traders is at $25.  For aggressive traders, you can hold to $23.  For risk control, the conservative exit level is $30.  $32 is the final exit point for aggressive traders.

Antero Resources

 

Category: AOA Trade Summary

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