Weekend Trader Alert
August 21, 2022
Open Positions Update
- The Academy Sports and Outdoors (ASO) October 21, 2022, 37-strike call was closed after hitting its target profit of +100%. If you have not already done so, please close out of your ASO position at the earliest opportunity.
- The McDonald’s (MCD) November 18, 2022, 240-strike call reaches its time-stop this Monday, August 22. Close the position at a limit price within range of the current market price when you place the order.
The following is this week's recommendation:
Chevron (CVX)Place a limit order to buy the Chevron (CVX) November 18, 2022 150-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, August 19, this option was offered at $15.35. CVX closed at $157.69 on Friday, August 19.Do not attempt to enter this position after Monday's close.Please use the following guidelines to manage the position:- Exit the position if the option is at a 100% gain from your entry price.
- If the option has not reached its target profit by 3:00 p.m. Eastern time on Monday, September 12, close the position.
- If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
Blue-chip gas and energy stock Chevron (CVX) is forming a pennant pattern on the charts, and a few weeks back the stock moved back above its 20-day week exponential moving average. Now, the equity is finding support off this trendline, which has typically been a bullish signal in the past. Chevron stock also recently found support at its year-to-date anchored volume weighted average price (AVWAP) after recapturing this level in early August.
Drilling down, peak calls for August expiration, which have been capping the stock's price of late, expired on Friday. CVX could now see a move higher with the next peak level of open interest sitting at $175.
There's still room for upgrades, too. Of the 16 in coverage, seven analysts still consider the equity a "hold" or worse.
An unwinding of pessimism among options traders could also create tailwinds. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity sports a 50-day put/call volume ratio that sits in the 89th percentile of its annual range.
Options look like a prudent play right now for those wanting to speculate on Chevron stock's next move higher. The security's Schaeffer's Volatility Index (SVI) of 29% stands higher than just 29% of annual readings, implying these contracts are reasonably priced at the moment. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) sits at 87 out of a possible 100. This means CVX has tended to outperform options players' volatility expectations of late.
Lastly, our recommended November 150 call has a leverage ratio of 6.8 and will double in a 14.5% rise in the underlying stock. That's approximately the jump it would take for CVX to retest its highs.
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