Occidental Petroleum’s (NYSE:OXY) recent flight path has been lackluster and uninspiring. Short of one isolated blast-off in June, OXY stock has mostly been dead money since early March.
If you’re trying to pull profits out of the corpse, then you have one of two ways to do it: Either tap into the cash flow properties of options to squeeze greenbacks out of OXY while it dithers, or wait for trending signals to emerge, and then play it directionally.
Today, I’ll show you how to do both.
The story of Occidental Petroleum’s meandering stock price isn’t unique. It’s a tale shared by not just the entire energy sector, but a broad swath of industries struggling in the aftermath of the novel coronavirus pandemic.
Fortunately, we are starting to see occasional pops revealing buyers are still willing to scoop up decimated names if the catalyst is right. Just last week, we saw epic outperformance by small-caps. In addition, bank stocks have been rising from the ashes after posting adequate earnings results. The Financial Select Sector SPDR Fund (NYSEARCA:XLF) climbed to a one-month high, carving out a path that energy could follow if the much-needed bullish sentiment finally seeps into it.
Ultimately, I’m emboldened by the uptick in demand buoying other distressed areas. It makes me willing to keep OXY stock on my radar for when bulls finally rotate back to oil.
Here’s What to Watch
You won’t find evidence of market participants finally warming to OXY stock in its balance sheet or fundamentals. It won’t come from news or earnings, either. It will emerge, clear and unmistakable, on the price chart.
There’s no need to overcomplicate the signal. When the price trend turns higher, so, too, should your bias. Ever since June’s jaw-dropping upside explosion, OXY has been stuck in a gradual, yet consistent, downtrend. Every pivot has been lower than the previous. The 20-day moving average has gradually rolled over to echo the turn. And now, we’re wrestling with whether or not the price will push through the 50-day.
Along the way, apathy has appeared. The urgency that drove trading volumes to the moon in past months has wholly disappeared. We haven’t seen much distribution, but we haven’t had any accumulation either. The lack of any directional oomph makes deploying aggressive trades unwise. There’s just not enough evidence yet to warrant throwing our lot in with bulls or bears.
The next pivot high is around $18.70. That’s your line in the sand that needs to be breached before pulling the trigger on bull trades. As for entering shorts, I’d watch the current pivot low near $15.70. There’s a lot of memory in that area. A push below it would signal the next down leg has begun.
How to Cash Flow OXY Stock
If the weakness of the overall trend has you shying away from directional trades, then your other option is building covered call or naked put positions that will profit even if OXY treads water. They are neutral to mildly bullish strategies that will generate gains quickest if the stock rises. Because of this, I still wouldn’t pull the trigger until the shares at least clear the 20-day moving average (currently at $17.69).
Both trades are similar, but the naked put is cheaper since you don’t have to purchase 100 shares of stock. I’ll build out both so you can take your pick.
Covered Call: Buy 100 shares of stock and sell the Aug $19 call.
Naked Put: Sell the Aug $15 puts for 90 cents.
Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!