4 Trades To Profit In BP: Bonus Idea
Dragonfly Capital | Mar 13, 2017 07:41AM ET
Here is your Bonus Idea with links to the full Top Ten:
Even though it has been nearly 7 years since the Deep Water Horizon explosion, it remains the first thing many see in their minds when they think of BP (LON:BP). The stock took a big hit after that and never fully recovered before the oil collapse that began in mid-2014. And it has been slow to come out of a bottom from February 2016. Peaking in July 2016, it has traded between 33 and 37 for all but a couple of weeks at the beginning of 2017. Boring.
That is unless you are a trader looking for a range trade. There are several characteristics of the price action that suggest it may be ready to take another trip to the top of the range. The price Friday jumped up to a new short term high. It has support for more from a rising RSI and a MACD that is crossed up and rising. It is just shy of piercing the 200 day SMA, which would make for a better case. But it has Bollinger Bands® that have squeezed, often a precursor to an imminent move.
Resistance higher sits at 34.90 and there is a gap to fill to 35.60 then more resistance at 36.20 and 37.15, the top of the range, 8.2% higher. Continuation above that could see resistance at 38 and 38.68, with a move over that very bullish, perhaps putting the bad history in the past. Support lower comes at 34 and 33.25 followed by 32.65. Short interest is low under 1%. The company is not expected to report earnings next until May 2nd and started trading ex-dividend February 15th.
The March options chain shows the biggest open interest at the 35 Call strike with the 36 Call also large. The April monthly chain shows open interest centered on the 36 Call and Put players from 33 to 35. The May options, past the earnings date, show largest activity at the 35 and 36 Call strikes.
BP
Trade Idea 1: Buy the stock on a move over 34.70 with a stop at 34.
Trade Idea 2: Buy the stock on a move over 34.70 and add an April 7 Expiry 34/33 Put Spread (60 cents) and sell an April 28 Expiry 36 Call (52 cent credit).
Trade Idea 3: Buy the April 33/35/37 Call Spread Risk Reversal (25 cents, selling 33 Put and buying 35/37 Call spread).
Trade Idea 4: Buy the April 35/37/38 broken wing Call Butterfly (55 cents) and sell the April 33 Put (35 cent credit).
After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which Heading into March options Expiration week, sees the Equity markets have completed their reset after the most recent leg higher.
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Elsewhere look for Gold to continue in its downtrend while Crude Oil also continues lower. The US Dollar Index looks to continue to pullback while US Treasuries are biased lower, possibly ready to break consolidation. The Shanghai Composite is pulling back in the uptrend and Emerging Markets are biased to the downside.
Everything lower so far. Volatility looks to remain at abnormally low levels, keeping the wind at the backs of the equity index ETF’s SPY (NYSE:SPY), iShares Russell 2000 (NYSE:IWM) and PowerShares QQQ Trust Series 1 (NASDAQ:QQQ). Their charts show the SPY and QQQ reversing short term pullbacks and the IWM arresting its drop. Longer term the SPY and QQQ remain strong, while the IWM has cracked and moved lower. Use this information as you prepare for the coming week and trad’em well.
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