27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
• MKM Partners believes that traders should sell oil stocks that have not shown signs of life in recent months.
• Many of these stocks have endured technical damage that MKM feels will take years or months to undue.
• WTI crude prices tend to bottom in mid-December, but the historical trend is far from a guarantee.
In a new report, MKM Partners analyst Jonathan Krinsky focuses on the outlook for oil stocks. Krinsky believes that now is the time for traders to unload oil stocks that have failed to rally in recent months.
Seasonal strength for crude?
Although seasonal trends should never be relied upon exclusively, WTI’s historical trading pattern indicates that mid-December tends to be a seasonal bottom for oil prices. The graph below illustrates oil’s historical year-end bounce, but Krinsky cautions that oil saw no such major bounce during this period in 2014.
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In addition, he points out that WTI’s seasonal bottom in late January/early February tends to provide a larger and more reliable bounce.
Damage has been done
Despite the possibility of a mid-December bounce, Krinsky sees very little cause for optimism in the charts of certain oil stocks. “While there is the potential for a bounce in crude, the bottom line is the trend for many energy stocks is so damaged that it will take many months if not years to repair,” he explained.
In the meantime, Krinsky recommends trimming the fat. “For now, we suggest selling the weaker names that have shown little ability to rally over the last few months.”
Names to sell
While nearly the entire oil industry remains under pressure from low oil prices, Krinsky sees particular weakness in the charts of a few highlighted stocks. MKM urges traders to sell the following nine names in the near-term:
Antero Resources Corp (NYSE: AR)
National –Oilwell Varco, Inc. (NYSE: NOV)
Oasis Petroleum Inc. (NYSE: OAS)
Range Resources Corp. (NYSE: RRC)
Seadrill Ltd (NYSE: SDRL)
SM Energy Co (NYSE: SM)
Sanchez Energy Corp (NYSE: SN)
Southwestern Energy Company (NYSE: SWN)
Whiting Petroleum Corp (NYSE: WLL)
Disclosure: the author owns shares of National Oilwell Varco and Whiting Petroleum.
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.