Investing in Halliburton (HAL) has been extremely easy so far in 2014. The stock has been in rally mode since the start of January, with HAL stock rising more than 40% so far this year, garnering support from its 10-day and 20-day moving averages. What’s more, with the company set to release its second-quarter earnings report on Monday morning, Halliburton stock could be poised to extend its gains further into all-time high territory.
Click to EnlargeBright and early on the morning of July 21, Halliburton is scheduled to release its second-quarter earnings figures for fiscal 2014. Wall Street is currently expecting the oil services baron to post a profit of 92 cents per share. That said, the whisper number arrives 2 cents higher at 94 cents per share, according to EarningsWhisper.com.
Analysts have reason to be optimistic regarding Halliburton’s upcoming report. According to data from Zacks, the company has bested Wall Street’s earnings estimates in every quarter (save one, where it matched) during the past five years.
As such, it should come as no surprise that Halliburton stock has attracted quite a bullish following in the analyst community. For instance, according to data from Thomson/First Call, 29 of the 35 analysts following HAL rate the stock a “buy” or better, compared to just five “holds” and one “sell” rating. There is room for improvement, however, as the 12-month consensus price target of $75 represents a meager 4.3% premium to HAL’s close at $71.86 on Wednesday.
Options traders are also quite bullish on Halliburton’s short-term prospects. Currently, call open interest in the July/August series of options (including weeklys) totals 114,585 contracts, compared to put open interest of just 78,259 contracts. The result is a bullishly skewed put/call open interest ratio of 0.68 for the front two months of options.
Taking a closer look, we find that options traders are centered on the August 72.50 and 75 call strikes, with each sporting open interest of more than 11,000 contracts. On the other hand, puts have accumulated at the weekly July 49 and 60 strikes, with open interest of 5,126 and 5,229 contracts, respectively.
Overall, implied volatility on weekly July 18 options appears to be pricing in a post earnings move of only about 1.8%. This places the upper bound of the expected move near $73.36, while the lower bound rests near $70.64. Given the stock’s strong price action, and recent news of a join fracking venture in China, implieds may be underestimating the potential for Halliburton stock, providing a prime opportunity for savvy call options traders.
For those looking to capitalize on a potential post earnings bounce, an August 70/75 bull call spread could fit the bill. At the close of trading on Wednesday, this trade was offered at $2.29, or $229 per pair of contracts. Breakeven lies at $72.29, while a maximum profit of $2.71, or $271 per pair of contracts, is possible if HAL stock closes at or above $75 when August options expire.
Alternately, if you’re not all that jazzed about HAL stock’s upside potential, you could look into a bull put sell position. Along those lines, an August 65 put sell might be a way to capitalize on HAL’s strong price action and growing technical support. After the close last night, the August 65 put was bid at 29 cents, or $29 per contract.
The upside to this put sell strategy is that you keep the premium as long as Halliburton stock closes above $65 when August options expire. The downside is that, should HAL trade below $65 when August options expire, you could be assigned 100 shares for each August 65 put sold at a cost of $65 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.