Trade of the Day: BP Put Options

Oil companies had a rough second half of 2014, as oil prices were cut in half. So far in 2015, oil is attempting to rebound, as are the oil company stocks.
One such stock is BP PLC (NYSE: BP). During the swoon in oil prices, BP’s price fell from over $51 to a low of $34.37, a decline of over 33%. Since the beginning of the year, the stock has rallied back almost 25%. The rally has been impressive, but it has brought the stock to a possible resistance level at the 52-week moving average.
BP Weekly Wyatt
We can also see from the weekly chart that the rally has put the weekly slow stochastic readings at an overbought level. The 10-week RSI has been rising, but hasn’t reached an overbought level since last summer.
One thing on the weekly chart that stood out to me are the similarities between the swoon in early 2012 and the most recent decline. The drop in 2012 was approximately 25% in only two months, whereas last year’s drop took six months. However, when you look at the recovery and the shape of the 13-week moving average, we see a similar pattern.
The daily chart shows how BP just recently moved above resistance at the $42.10-$42.25 range. This area halted rallies in November and February. The stock was able to move above the resistance last week and could potentially break out from here.
BP Daily Wyatt
The biggest obstacle I see for the stock trying to break out are the overbought levels from the daily oscillators and the overbought level from the weekly stochastic readings. The sentiment toward the stock is relatively bearish, especially from analysts. There are 12 analysts following the company and four have the stock rated as a “buy,” while eight have “hold” ratings on the stock.
Looking at the overall picture, I am bullish on BP. I like the fact that it has bounced back nicely so far this year. I also like the fact that investors and analysts are skeptical of the stock.
However, I don’t like the overbought levels on the daily and weekly charts. I would wait for a slight pullback before buying it. The daily chart would be the better gauge, in my opinion. If the stock can go through a little pullback and get itself out of overbought territory, it becomes more attractive at that time.
If you are looking to buy the stock and don’t want to pay the current price, you can always write puts at the price where you want to buy the stock. Then if the stock falls to your option strike and you get assigned the stock, that’s OK, as you wanted to own the stock anyway.
If the stock doesn’t fall and remains above the put strike price, you get to keep the premium you collected when you sold the BP put options. This is one way to make money while you wait for a pullback.

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