This week’s oil pop helped keep recovery attempts in the energy patch alive. Crude oil’s support bounce at the critical $43 zone spurred rebounds in Energy SPDR ETF (XLE), SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and other commodity-centric funds.
Anyone still fishing for a bottom in energy stocks has a number of candidates to choose from. One of the more attractive looking names right now is BP (BP).
While the longer-term trend of BP stock remains a mess, positive signs are beginning to emerge. For starters, BP scored a rip-roaring rally earlier this month sending shares 20% higher. The rebound was successful in carrying prices north of the 50-day and 20-day moving averages.
What’s more, BP stock has been able to maintain the gains for almost a month now. Any and all bear raids have been snuffed out in short order, minimizing the damage of pullbacks this month.
The recent consolidation has developed a new base to play breakouts from. Watch for a breach of the $36.30 resistance level to signal BP’s next leg higher.
Technicals aside, BP stock currently boasts a 6.79% dividend, giving income seekers plenty of reason to consider wading into the water.
Get Paid with Short BP Puts
Speaking of income, rather than snatching up shares of BP immediately, how about getting paid to buy shares? Such is the outcome for traders willing to sell naked puts. The naked put obligates you to buy 100 shares of stock at a set price. In exchange for your troubles, you’re paid some cold, hard cash.
With BP currently perched around $35.50 you could sell the Dec $33 put for 54 cents. If BP stock can remain above $33 you’ll pocket the 54-cent income at December expiration when the put expires worthless. Then you could sell another put for January, February, and so on. You could do much worse than grabbing 54 cents of income monthly on a $35 stock.
And if BP tumbles from here? Well, you’re obligated to buy 100 shares at $33, but since you get to keep the 54-cent premium your true cost basis is actually $32.46. If that sounds like a winning proposition, then consider this trade idea a win-win.
On the other hand, if you’d prefer to avoid accumulating shares of BP stock, simply buy back the put if BP sits below $33 at expiration.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
