- Marathon Oil (MRO) stock offers a double top breakout pattern for new bulls looking to cash in on booming oil stocks.
- Energy was one of the few sectors that closed in the green on Wednesday’s tumultuous session.
- MRO stock is a lower-cost way to play oil if you’re a cash-strapped investor.
Marathon Oil (NYSE:MRO) lost ground for the third session in a row on Wednesday. The 1.5% slide came even as the Energy Sector (NYSEARCA:XLE) closed up 0.6% on the session. But before you get discouraged by the brief bout of relative weakness, realize that MRO stock is still beating its sector by a wide margin for 2022, with gains of 48.7% versus 37.6%. The ascent allowed Marathon to build one of the best uptrends on the Street, and it now offers a breakout pattern.
Let’s take a closer look at the price chart from multiple angles. Then, I’ll share my two favorite options strategies.
The Big Picture for MRO Stock
The weekly time frame reveals how far Marathon shares have come since sinking to $3 during the pandemic. At $25, prices have climbed some 700% over two years. Were it not for the fact that MRO stock had fallen 93% in the preceding five years, we could celebrate its new residence on the moon.
As is, the parabolic phase of its recovery that we’ve witnessed this year has simply returned prices to 2018 levels. The takeaway for me is clear. Although MRO shares are up a lot and seemingly overbought, they have a long way to go if you’re a believer in the stickiness of high oil prices and the inflation narrative that has taken Wall Street and the world by storm.
Here are two other chart dynamics that are compelling on the weekly view.
First, prices have closed above the rising 9 exponential moving average (EMA) every week this year. The upward mobility has been as persistent and powerful. Logic demands optimism until we see prices pierce and close below this moving average.
Second, we continue to see the uptrend’s momentum increasing even from an already high level. The RSI indicator became overbought in January, but it has continued to carve out higher highs. This confirms the strength behind the last quarter’s worth of gains.
Examining Marathon Oil’s Daily Stock Chart
With the big picture framed, let’s drill down to the daily.
As you’d expect, the uptrend on the weekly translates into an equally compelling climb on the daily. This year, the 20-day moving average has been the go-to location for dip buyers. We find ourselves knocking on the door of this particular smoothing mechanism right now. Based on the pattern, bulls have two choices: buy once confirmation arrives that prices are bouncing off support or wait for a break of resistance near $26 to ensure prices are pushing past the current range.
Two Options Strategies Await
Consider the following options if you find the bullish evidence compelling enough to buy here. First, you can take the simple route of purchasing shares outright. MRO is cheap enough to make this doable for any trader. But if you want to lower the cost even further, amp up the leverage or increase your probability of profit, then using options contracts is the way to go. Here are my two best ideas.
Options Trade No. 1: Sell the May $21 naked put for 55 cents.
This is a bet that MRO will be above $21 at May expiration. If it is, you’ll pocket $55 per contract. If the put sits in the money at expiration, you’re obligating yourself to buy shares at $20.45. That’s about a 20% discount from the current price and should be a good entry point for a longer-term bullish position.
Options Trade #2: Buy the July $25/$30 bull call spread for $1.45.
You’re risking $1.45 to make $3.55 if MRO stock rises to $30 by expiration. This is the more speculative trade of the two, but it comes with an eye-popping return if prices rise far enough.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.