While the S&P 500 has been sleeping near all-time highs for weeks, oil has been quietly climbing. In fact, the consistency of the ascent has been record-setting. According to Bespoke Invest, crude oil has gone 13 straight days with an intraday high that was higher than the last. And with this morning’s push, the streak has extended to 14 days. The steady march higher is boosting energy stocks, and I’m finding multiple quality trade ideas in the sector.
Today, I’ll share my top three.
The imminent Federal Reserve announcement could throw a wrench into these setups, but traders don’t seem worried if market volatility is any indication. The CBOE Volatility Index (CBOEINDEX:VIX) sits near its low for the year and hasn’t seen much of an uptick ahead of the news.
There’s always the chance that there’s too much complacency, but in this case, I’m willing to trust the consensus and assume today’s Fed release will have little impact.
Here are the energy stocks that I find most attractive:
After a brief bit of technical analysis, I’ll outline my preferred options strategy.
Energy Stocks to Buy: Exxon Mobil (XOM)
Exxon Mobil is always an obvious choice when shopping in the energy sector. It’s the largest holding of the Energy Sector ETF (NYSEARCA:XLE) and is often used as a proxy for the space. Its price chart offers a clean uptrend that just popped to a new 52-week high on Tuesday. High volume accompanied the surge and confirms institutions are piling in. In fact, we’ve seen a string of accumulation days over the past two weeks.
Yesterday’s breakout completes a three-month cup-and-handle pattern and could signal XOM stock is ready for the next leg of its bull market. Option premiums are dirt cheap, so we’re going with a bull call diagonal spread idea. We can structure the trade to profit even if XOM trades sideways over the next month.
The Trade: Buy the September $62.50 call while selling the July $67.50 call for a net debit of $3.50.
If XOM pushes toward $67.50 and above, you should be able to capture a $1 to $1.50 profit.
Oil services companies are experiencing quite the resurrection. Schlumberger is up 57% year-to-date and has one of the best-looking charts in the industry. Its prior upswing saw a sharp uptick in volume and momentum, which suggests the trend is strong and likely to continue. The pullback that has since developed is providing an easy, low-risk entry point.
We’re sitting at the rising 20-day moving average, and a bullish reversal candle is forming so far this morning. This is as good a buy-the-dip setup as you’ll find anywhere.
At $34, SLB stock offers a cheaper price tag. Couple that with the low implied volatility rank of 9%, and long calls look good if you’re willing to swing for the fence.
The Trade: Buy the August $32.50 call for $3.35.
Energy Stocks to Buy: Devon Energy (DVN)
The final of our energy stocks to buy is Devon Energy. At 86%, its 2021 gain is far outpacing SLB. But it’s also more volatile, so keep that in mind. The uptrend is consistent and saw a sharp jump on June 1, which came in a gap. We’ve now returned to the gap area, which should act as a support zone. There’s also the rising 20-day moving average, which should bring buyers to the yard.
Since the cost of DVN stock is similar to SLB, and its implied volatility is in the basement, I’m going to echo my long call idea.
The Trade: Buy the October $29 call for $3.40.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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