EOG Resources Inc. (NYSE:EOG), is a 56.15 billion energy player that explores , develops, produces and markets crude oil and natural gas primarily in producing basins in the United States of America , Canada, The People’s Republic of China (China), and from time to time, select other international areas.
I wrote about trading the options of EOG Resources in May in a post titled “EOG Resources Will Rise on New Horizontal Oil Plays”. In that post, I placed a $105 price target on EOG Resources and I recommended the October 105 call.
Performance So Far
When I wrote that piece, shares of EOG Resources were trading at $101 per share and the October call that I recommended were trading around $5.40 per contract. As at 1:10PM today, shares of EOG Resources were trading up 2.13% to $110.34 per share while the options contract was trading up 9.62% to $8.55 per contract.
4 Bullish Reasons on EOG Calls
Apart from the interesting bullish performance in the stock and options of EOG Resources, the company makes an interesting bullish case. To start with, EOG Resources still enjoys the first mover advantage in horizontal oil plays. For instance, EOG Resources has huge production potentials in its new oil plays in DJ Basin Plays namely the Codell, Niobrara, Parkman and Turner acreages.
The second reason to stay bullish on EOG Resources is that the company has a history of recording significant uptrend after posting great quarterly results. The company has consistently surprised positively in the last 8 quarters with a commensurate increase in its share price as the image below shows.
Thirdly, EOG is set to releases second quarter 2014 results on Wednesday (August 6) and I strongly believe that the company will deliver another impressive quarterly result. I am optimistic about an earnings beat on Wednesday judging by the strong outlook that the company gave in the first quarter. EOG expects its 2014 Full year Crude Oil Production to increase by 29% because of the potential inherent in the addition of high rate-of-return horizontal drilling inventory in four of its U.S. crude oil and combo plays with total estimated potential reserves of 400 MMboe.
The fourth reason to stay on the bullish side with EOG Resources is the irrational fear in the market about the company’s recent bullish form. The RSI of EOG Resources started falling from 50.60 on July 29 to 31.34 last Friday in sharp contrast to the uptrend action in the stock. Interesting, EOG now has an RSI of 41.80 up from 31.34 last week Friday to suggest that buying activity on the stock is picking up in anticipation of another impressive earnings beat.
How to Trade EOG Options
I expect the share price of EOG Resources to skyrocket significantly when the company crushes all estimates on Wednesday. Nonetheless, it might not be smart to make a play on August options due to the closeness of the expiry date.
The EOG Oct 2014 105.000 call (EOG141018C00105000) that I recommend two months ago has done well and I am scaling out of that position as I sell two-thirds of my contracts while the remaining one-third will allow me to take part in further upside on the stock. In the meantime, I have a 120 price target on the stock in the next 6 months and I have my sights on the EOG Jan 2015 115.000 call (EOG150117C00115000) at an asking price of $5.50.
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