Fill ‘er Up! ConocoPhillips (COP) Stock Is a Profit Pump

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ConocoPhillips (NYSE:COP) reports earnings on Tuesday, May 2, before the market opens, and there’s a lot riding on this one. The chart of COP stock shows extreme indecision … and that’s where our opportunity lies.


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Over the past six months, traders have loved ConocoPhillips, then hated it, then loved it again. Now, however, they’re back to split … right in dead-center range.

It’s fundamentally insane to see this type of action in a mature company, but technically, the chart makes total sense. COP stock spiked on OPEC headlines, but then broke down on two trend breaches followed by a bearish inverse cup-and-handle pattern. More recently, ConocoPhillips surged on asset sale news, which brought the stock to settle at $48.

That’s the mid-range of this whole mess.

Generally speaking, the short-term reaction to earnings reports are more gambling than investing. Even if we know what the company will say, we have no idea how traders will react. But events are exciting and profitable to trade as long as I’m cautious not to risk anything that will break my heart (or my piggy bank).

Big asset sales and/or acquisitions often muddy up reports and leave traders confused. But if ConocoPhillips manages to report a profit, the sky’s the limit. So I want to take a bullish position in COP stock to capture this potential move. I do have to acknowledge the risk of investor disappointment; COP analyst ratings are bullishly biased so there is the possibility of disappointment.

How to Trade COP Stock Here

The bet: Buy the Jun $48 call for $1.50 per contract. Any rally between now and mid-June — whether off earnings or anything else — will make me money.

To hedge my bet, I will lower my out-of-pocket expense by selling downside risk against COP proven support levels. I only do this if I am confident in my ability to manage sold put risk.

The bank (optional): Sell the Nov $42 put and collect $1.50 per contract, thereby rendering my entry into this bet free.

The net effect of taking both trades is that I am long COP stock through mid-June for free. The Nov put has an 80% theoretical chance of expiring in my favor, so as long as ConocoPhillips stays above $42, any premium I recover from selling my calls would be pure profit.

Selling puts in dangerous, so only do it if you’re willing and able to own the stock at that price. Otherwise, change the bank to a sold credit put spread instead, which will do a good job of defining your maximum risk.

Email sellspreads@gmail.com with questions or join me to learn more about options in a personal 1on1 webinar here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/fill-er-up-conocophillips-cop-stock-is-a-profit-pump/.

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