Buy Alert: June 26, 2015
Buy Alert: June 26, 2015
Option Strategy:
Buy Whiting Petroleum $WLL September 18, 2015 $36.00 calls for $2.70 or better.
Commodity Outlook: Crude Oil
No doubt about it, WTI crude has turned into a real snoozer…
As I mentioned in Wednesday’s update, the commodity has been stuck at the $60 a barrel area for what seems like an eternity.
As a result, energy names have been sliding lower the past few weeks as traders look to hotter industries for short-term gains. One look at the Energy Select Sector SPDR $XLE and you’ll see what I mean…
As you can see, it’s been a tough slog for $XLE the past few weeks. But as you’ll also see, $XLE is toying with technical support (green line).
There are two situations that can arise here…
$XLE can hold support and rally. Or the energy ETF can break support and fall to the $73 area or lower.
Since we already have a put position in the SPDR Oil & Gas Exploration and Production ETF $XOP from last week (which acts very similar to $XLE), let’s take a low risk shot on a bounce in energy.
Here’s how we’ll do it…
Resource Trade: Whiting Petroleum $WLL
Despite the broad weakness in oil exploration stocks the past few weeks, $WLL has been holding up quite well. In fact, the stock is forming a promising technical pattern that could very well lead to big gains in coming months.
I’ll show you what I’m talking about in a minute. But first, here’s the option contract we’re interested in.
Buy the $WLL September 18, 2015 $36.00 calls for $2.70 or better.
The current bid/ask spread for this contract is $2.25/$2.55.
Do not pay more than $2.70!
Our official entry price for performance tracking is $2.55. Your price may be higher or lower.
Exit Strategy:
As you can see, $WLL is forming a triangle pattern (purple lines). This chart pattern typically results in an explosive price move. And since $WLL has held its ground rather nicely the past few month, the next big price move will likely be higher.
Remember, we want $WLL to trade higher. Our first profit target is $40.00 while our second target is at $47.50.
Our risk control line for this trade is at $33.50. If $WLL trades below that level, conservative investors should consider closing this trade to preserve capital.
Category: Commodity Trading
