The holiday-shortened week has begun, and the oil market is stealing the show. Crude prices are gushing higher by 3% to a post-pandemic high. In fact, this is the highest level we’ve seen oil since late-2018. We’re focusing on energy plays for this week’s top stock trades to commemorate the epic round trip.
As is often the case, the surge in oil is lighting a fire under energy stocks. Today’s leaderboard is littered with energy companies. A few are even up more than 10% on the session. While there’s always the chance that the momentum fades, I wouldn’t bet on it. With rising commodity prices and inflation continuing to command investors’ attention, the energy sector is sure to remain a hot area.
After drilling into the sector, I found the following three picks poised for more upside after today’s jump:
Let’s take a closer look at each chart. Then I’ll share a smart options trade.
3 Top Stock Trades: Marathon Oil (MRO)
Marathon Oil deserves the top mention because of the magnitude of today’s rip. At the time of this writing, MRO stock was up 13.5% on monster volume and 40 million shares have already been traded. I wouldn’t be surprised if we reach 50 by the closing bell. With the pop, prices are breaking out of two key resistance zones at $12.20 and $13.20.
We’ve also officially regained all that was lost during last year’s plunge. And, now we’re north of the 200-week moving average. We’ve essentially blasted through all the potential ceilings that loomed overhead. It doesn’t mean prices will move straight up from here. But it does mean that bears haven’t a leg to stand on anymore.
I wouldn’t fault anyone for buying calls or stock here, but I like naked puts for my money.
The Trade: Sell the July $13 put for 63 cents.
Schlumberger entered the week testing the 20-day moving average. Pullbacks like this create compelling buy-the-dip setups. It was a perfect pattern to precede today’s jump. This is exactly what any would-be buyers wanted to, and I suspect many triggered into trades today.
The next major resistance zone on the weekly chart is $40, so consider that the upside target. Though, it will probably require multiple swings to reach. If you want to bail at the first sign of weakness, use last week’s low near $31. Breaking below it will invalidate today’s rally as well as the overall bull retracement pattern.
Implied volatility is in the tank at the 4th percentile, so long premium plays are the way to go.
The Trade: Buy the Aug $32.50/$37.50 bull call spread for $1.70.
3 Top Stock Trades: Exxon Mobil (XOM)
The final of our three top stock trades is the largest of them all. If you want the lowest beta of the bunch and the highest dividend payer, consider Exxon Mobil. Its share price lacks the powerful momentum of its predecessors, but some view the sleepier-yet-more-stable nature as a positive. XOM stock is popping 3.3% and is taking out the 20-day moving average in the process.
With the short-term breakout, the stage is set for a run back to its 2021 high of $64.02.
To capitalize on the bullish run and exploit the lower implied volatility rank of 2%, let’s build a diagonal spread.
The Trade: Buy the Aug $57.50 call while selling the 2 July $63 call for a net debit of $3.85.
On the date of publication, Tyler Craig held LONG positions in XOM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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