Oil is hovering around the $40-a-barrel mark and there seems to be some sentiment that it could be headed higher. Israel has said its attacks on Hamas in Gaza will not be complete until Hamas is completely eliminated. I’m not a big fan of the oil stocks because they can be hard to predict and they usually do the exact opposite of what you think they are going to do. At least that has been my experience.
I still think oil can get below $30 due to the global economy but over the short-term if the escalating violence in Gaza continues, oil could be headed higher. I told myself I wouldn’t trade over the holidays but sometimes my instincts get the best of me.
We will continue to get some price volatility in oil and this trade could be like spitting in the ocean but I like it.
Schlumberger (SLB, $40.48, down $0.43) is the largest player in the oilfield service industry and is trading at 52-week lows. In fact, the stock is down nearly 60% from a high of $110 and may have formed a nice bottom. Take a look at a chart and you will see the support developing here at these levels.
OPEC has also been meeting with an eye toward pushing crude prices higher and I think Schlumberger could benefit from these catalysts. I’m looking at the February 45 calls (SLBBI, $2.35, down $0.10) as a possible trade. I’d like to get them for $2.00-$2.10 as I don’t want to pay someone three days of time premium right off the bat. The market is closed Thursday and the weekend is coming up after that.
Schlumberger is capable of making a 10%-20% move on any given day and hopefully the next one will be higher. The stock opened lower this morning and we may be able to get the call options at our target prices. If the trade is triggered then set stops at $1.25 with an exit of $3.00 or higher.
Rick Rouse
Rick@OptionsMentoring.com
