Go Long Calls in Phillips 66 (PSX)

Fill 'er up with PSX calls

   

The market seems to be a little lost lately. Stocks have been on an incredible run for a long time and now it appears to be a little indecision in the market. Here is a trade idea on a stock that has been fairly predictable as of late.

Phillips 66 (NYSE:PSX): Long Calls

5 10 13 PSXchart 300x122 Go Long Calls in Phillips 66 (PSX)The trade: Buy the June 62.50 calls for $2.50 or less.

The strategy: The long call is generally used for a bullish outlook on a stock. The strategy can profit if the stock rises and the call premium increases to an amount more than was paid. Maximum profit is theoretically unlimited because PSX can continue to rise and the maximum loss is $2.50 or whatever was paid if PSX finishes below $62.50 at June expiration. Breakeven is at $65 at expiration based on a cost of $2.50.

The rationale: Phillips 66 has a well diversified portfolio centered on energy. The company is in the Fortune 500 with nearly $51 billion in assets. Since the stock spun-off from ConocoPhillips (NYSE:COP), it has increased nearly 90% and has implemented a buyback program. The company reported earnings last week and increased its first quarter earnings 127% from 2012. Not bad for a growing company!

But of course this trade idea really comes back to the stock’s chart. The stock had a huge decline starting at the beginning of April after a nice trend higher of about a year. Since the decline, the stock has been bouncing around between pivot levels and support and resistance. Currently the stock has declined to a couple of support areas. One is a horizontal support line from previous price levels and the other is support from an upward trendline. The stock is also setting up a 2-5 candle buy set-up that has not quite triggered (need the previous high to be surpassed). All three of these put the odds on a trader’s side for the stock to move higher. Fill er’ up with 66!

No positions held at the time of this writing.

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