Hey Traders,
The past few weeks have seen oil prices surging, as geopolitical forces – in particular, escalating tensions at the Ukrainian border – and lower supplies push crude prices higher.
Not ones to let a trading opportunity slip by, Smart Money traders have been all over energy stocks, pouring their capital into their speculations on the slippery stuff …
Three trades in particular have grabbed my attention over the last few trading days …
Here’s how Big Money is betting on black gold.
BP Amoco (Ticker: BP)
BP has been the subject of quite a bit of Big Money attention in recent weeks.
The oil and gas name is perhaps the most tightly tied to the Ukraine/Russia conflict of any of the gas giants, given that it owns about 20% of the state-controlled Russian energy firm Rosneft PJSC.
But in the meantime , BP shares are continuing their trek higher, and the company delivered an outstanding earnings beat on Tuesday, with revenue soaring on higher commodity prices.
Perhaps the positive report is what triggered this sizable Big Money bet?
Now, what I really like about this trade is this is a trader who is closing out a BIG winner …
And when Big Money is right once, I tend to think they know what they’re talking about …
So the massive opens that happened at the same time especially piqued my interest!
The trader was previously long two risk reversals: the April 32-strike calls and 24-strike puts, and the April 35-strike calls and 24-strike puts.
They closed out both of these trades, and used some of that capital to open quite a few new trades – specifically two call spreads partially financed by put sales.
This trader opened up the 34/39-strike call spread, selling the April 27-strike puts against it, as well as the June 35/40-strike call spread, which again, they sold the June 27-strike puts against.
With BP currently trading around $33, this tells me this trader is pretty confident that there will be at least moderate upside into the warmer months.
Does this trader know something we don’t?
This is one trade I actually piggybacked just hours after it crossed the tape in my Big Money Flow program … and I believe it is going to work out quite well for us!
Ring Energy (Ticker: REI)
REI continues to churn sideways near the $2.40-$2.80 range, as it has all year. This range is slightly higher than the $2.02 the shares bottomed out at in December, but REI is still well off its October peaks near $4.15, with the shares currently trading around $2.80.
That didn’t stop Big Money from making a bullish bet on the stock during Friday’s trading session …
From the looks of it, Smart Money thinks the Texas-based oil and gas stock will be moving higher in the near future …
This trader purchased 9,795 contracts of the February 3-strike calls for $0.15.
That’s a $146,925 bet that the small-dollar stock will tack on at least 12% in the next two trading weeks.
It may not sound like much, but take into account that REI’s expected call volume on Friday was 3,741 … so this trade alone was worth more than double the total expected call volume in REI’s pits!
Devon Energy Corp. (Ticker: DVN)
After spending the fall months sidewinding, DVN broke out on yet another leg higher, popping from a near-term low of $35.55 to a high of $55.44. Currently, DVN sits around $52.
It seems as though Big Money is betting that DVN will continue its journey higher …
This trader opened 12,074 contracts of a March 60/65 bull call spread, buying the 60-strike calls for $1.52, and selling the 65-strike calls for $0.71.
This cost the trader $977,994, and will require DVN to jump more than 15% in the next six weeks!
Clearly, Big Money likes oil right now …
So we will have to wait and see which of these trades helps Big Money strike (black) gold …
Your Only Option,
Mark Sebastian