Weekend Trader Alert

Weekend Trader Alert

February 12, 2023

Open Positions Update

There are no portfolio updates this week.

The following is this week's recommendation:

Valero Energy (VLO)

Place a limit order to buy the Valero Energy (VLO) June 16, 2023 135-strike call at a limit price within range of the current market asked price when you place your order. At the close on Friday, February 10, this option was offered at $15.75. VLO closed at $140.73 on Friday, February 10.

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, March 13, close the position.
  • If there is a change to the above closeout parameters, we will notify you in your regular Sunday evening communication.
The shares of Valero Energy (VLO) are moving above their 20-day moving average, as well as their year-to-date anchored volume-weighted average price (AVWAP), with additional support from their 50-day trendline. The latter is also attempting to pivot higher, which could result in a nice rally for the shares. Given that the stock is also holding a trend from its December 2021 low, we are initiating a new long position on VLO.

An unwinding of pessimism in the options pits could provide tailwinds. Valero Energy stock’s 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits higher than 92% of readings from the past 12 months. That ratio is already rolling over, which is reminiscent of February 2022, when the shares saw a massive rally through June.

It’s also worth noting that peak put open interest (OI) acted as support at the 130-strike, and that large put OI at the 135-strike could become supportive now that Valero Energy stock quickly moved back above it.

VLO calls can be had for a relative bargain right now. This is per its Schaeffer’s Volatility Index (SVI) of 40%, which stands higher than just 24% of readings from the past year, suggesting options traders are pricing in low volatility expectations at the moment. Plus, the stock’s Schaeffer's Volatility Scorecard (SVS) sits at a 71 out of 100, meaning it has generally exceeded option traders' volatility expectations in the past year.

Our recommended June 135-strike call has a leverage ratio of 5.7, and will double in value on an 18.1% pop in the underlying shares.

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