The ongoing bull market in crude oil has been a boon for oil stocks. It has lifted the energy sector back to bull mode and uptrends are multiplying across the space. One such uptrend is Marathon Oil Corporation (NYSE:MRO). Yesterday MRO stock hurdled 3.9% toward critical overhead resistance. One more push and we’ll have a monster breakout on our hands.
Marathon’s recovery has been a volatile affair with numerous high percentage swings along the way. In early-2016 MRO reached a lowly $6.52 which makes the climb to $21.91 — a 236% gain — an applause-worthy feat.
The uptrend has been orderly in recent months. With Monday’s jump, the stock now sits well above the rising 20-day, 50-day, and 200-day moving averages. The 50-day moving average, in particular, has been a champ, halting six separate breakdown attempts over the past month. All told, the weeks of chop have formed a classic base that could serve as the foundation for Marathon’s next ascent.
Remember, sideways consolidation periods like this allow extended stocks to become less so. As overbought pressures ease and profit taking is absorbed, these periods create a stable support zone for a more sustainable uptrend. Given the sharp rally from March to May, MRO stock was in desperate need of a pause anyways.
MRO Stock Risk Reversals
On the implied volatility front, option premiums are priced neither high nor low. The IV rank is 35% making strategy selection a matter of trader preference.
With Marathon’s low price tag it’s easy to get creative with an option selling play. I think a bullish risk reversal has merit here. Sell the Aug $21 put for around 55 cents and buy the Aug $24 call for around 67 cents. This sets up a position that effectively breaks even at expiration if MRO sits between $21 and $24, but has big upside potential if the stock goes the distance.
To cut the risk, I suggest buying to close the put if it drops in value towards 10 cents.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.
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