A typical trader’s pre-market morning routine begins with a brief glance at what’s happening in the futures market. Today, that activity reveals most markets are still snoozing except for crude oil, which is popping 1.5%. And that provides a beautiful excuse to take a fresh look at energy stocks to see which ones are ready to run alongside black gold.
Unlike most sectors this year, energy has been moving to the beat of its own drum. It defied the global bull market for the first eight months of the year falling 21% peak-to-trough. Spectators wondering when the sector would finally succumb to the onslaught of optimism buoying every other risk asset need wonder no longer.
With the Energy Select Sector SPDR Fund (NYSEARCA:XLE) officially rallying 10% off the lows and reversing its short- and intermediate-term trends in the process, it seems the bottom is in.
And since we’ve just seen a three-week base established, now is as good a time as any to seek out energy stocks to buy.
Here are three such up-and-comers poised for more upside.
Energy Stocks on the Move: SPDR S&P Oil & Gas Explore & Prod. (ETF) (XOP)
Before we dive into individual securities, let’s first offer up an idea to capitalize on strength out of the entire sector. While some traders may prefer using XLE for sector-wide bets, I find the SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP) more attractive. It’s like XLE’s higher-beta cousin. With more pep in its step, its options offer more premium to play with.
XOP’s nascent uptrend scored a garden-variety pullback to the rising 20-day moving average. Such bouts of profit-taking provide lower-risk entries for spectators who were afraid to chase. And if today’s pop in crude oil is a sign of things to come, XOP may be ready to kick off its next advance.
Buy the XOP Dec $33 calls for $1.90.
Energy Stocks on the Move: Exxon Mobil Corporation (XOM)
Next up we have the indisputable king of oil, Exxon Mobil Corporation (NYSE:XOM). Heading into September, XOM stock was a veritable dog digging a hole to China. It simply refused to go up. And then, someone flipped a switch, and it finally bottomed.
The rally was sufficient in carrying Exxon’s stock price back above every single major moving average. Just last week it popped back above its 200-day moving average for the first time since the turn of the year. And while XOM is undoubtedly a bit extended and approaching overhead resistance, bull plays are the way to go.
Unlike XOP which carried an implied volatility rank of 0%, XOM options are pumped suggesting short option plays are paying handsomely right now.
Sell the Nov $80/$77.50 bull put spread for 32 cents.
Energy Stocks on the Move: Halliburton Company (HAL)
The price action in Halliburton Company (NYSE:HAL) has mirrored that of XOP. It boasts a new uptrend that just pulled back to the rising 20-day moving average. The next significant resistance level looms around $48, giving HAL another $3 or so of upside.
Wait for HAL to pop above Friday’s high ($45.36), then sell the Nov $42.50 puts for around 40 cents or better. This trade will set you up to snag the stock at a discount if it falls on the upcoming earnings release on Oct. 23.
Otherwise, the put will expire worthless, allowing you to pocket the 40 cents of premium.
As of this writing, Tyler Craig held bullish positions in XOP. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.