The crisis in Iraq continues practically unchecked; yet, oil prices are not rising as expected because Iraq’s oil field in the south are safe from insurgent attacks and because Libya is back into the business of exporting oil. Oil stocks are no longer the attractive play that they were at the start of last month and the sharp decline in share price of oil stocks yesterday and today points to the fact that investors are giving up on oil.
However, I consider this loss of interest in oil stocks a great opportunity for contrarians to lock in future profits at a discount. Today, we explore the options of one of the energy stocks that are positioned to give option traders value in the next couple of months. BP PLC (NYSE:BP) with its market capitalization of $161B is an integrated oil and gas company. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging.
Reasons to Go Contrarian on BP
- Stability in Volatility
Shares of BP are down 0.49% to trade around $52.36 today; yet, the stock is only 2.1% shy of its 52-week high of $53.48. The stock chart below shows how shares of BP have traded in the six months.
You will notice that the stock has been rising and falling within this period; yet, you will agree that the predominant trading direction of the stock is northbound.
You will also notice that the stock did not for once trade below its 50 and 200-day moving averages even in the periods of declining share price. Hence, it is safe to opine that BP is a relatively stable stock under the current market conditions and that investors will rush back to the safety and security that BP offers as the pullback in the market continues.
- Strengthening of Production Alliances
One of the most recent company news has it that BP has signed a second major deal with Russia’s Rosneft. The specifics of the deal will see Rosneft providing BP with either oil products or crude oil of up to 12 million tons. You will remember that BP has a 19.8% stake in the Rosneft and that both companies entered a joint venture deal for the exploration of shale oil in Russia.
- New Sales Agreement
As BP works on increasing its production capacity by forging new alliances, the company is also strengthening its market position. News has it that BP has signed a deal with CNOOC Ltd for the supply of LNG to the southeastern parts of China. The deal signed in the presence of Chinese Premier Li Kegiang and British Prime Minister David Cameron is valued at about $20B.
How to Trade BP Options
I am persuaded that investors will flock back to the stability that BP offers in the next couple of weeks. This is especially true as we expect the company to release its Q2 2014 results on July 29. I am long BP and I am planning to exercise the BP Jan 2015 55.000 call (BP150117C00055000) contract as the stock price soars in the next couple of months.
— Daily Option Alerts