Hey Traders,
Oil stocks have been the topic of plenty of headlines so far this year, between the previously-forecasted energy shortage we’ve been watching since late 2021 …
Debates about how to balance supply, demand, and reserves …
And now the Russia/Ukraine war is really shining a spotlight on oil, and how dependent we are on black gold.
So, it shouldn’t be shocking that I like oil stocks.
And on Tuesday, I saw a Big Money move on one name I liked quite a lot myself …
Cenovus Energy Inc. (Ticker: CVE)
Like many other oil names, CVE has been tracking steadily higher since last fall.
Chart courtesy StockCharts
The shares have seen a whopping 138% increase from their late-August lows, and are currently trading at highs not seen since 2015. On Tuesday, the shares dropped 1.3% to close at $17.08.
On Monday, the Canadian oil sands name announced that it would be foregoing hedging practices – used to hedge against sharp downturns in oil prices
The firm has been paying dearly for these hedges, too, with realized losses during Q1 and Q2 expected to total more than $1.1 billion.
Of course, CVE leadership insists that the company doesn’t “hedge” so much as dynamically lock in profits, but either way, their risk management strategies are no longer necessary. This is due in part to rising prices of crude oil, along with CVE’s own fundamentals shaping up, such as lower debt and less volatile cash flow.
Furthermore, traders can look forward to new corporate guidance and earnings set to be released on April 27, and in May, CVE will no longer make acquisition-related payments to Conoco (Ticker: COP).
Given CVE’s strong recent performance, and the abundance of reasons to be bullish on oil stocks, it shouldn’t be too surprising that Big Money wants in on the Canadian oil sands name…
This trade is actually a partial close and roll … and a profitable one at that.
Originally, this trader opened a June 16/21-strike call spread in March, with CVE trading at $14.90. The trader entered their position at a total cost of $1.00-$1.25.
And while they are leaving their sold 21-strike calls open, they are currently selling-to-close their 16-strike calls for $2.35 (not a bad profit!), and reopening their position at the overhead 18-strike calls, paying $1.40.
Like we have talked about before, my favorite Big Money trades to follow are the Big Money traders who have already proven themselves to be right …
And this CVE roll certainly fits that bill.
During Tuesday’s live Big Money Flow show, my Big Money Flow members and I analyzed this trade …
And took a closer look at how we could trade the same Big Money sentiment, but with an even more optimized trade.
Unfortunately, I can’t tell you what we did …
But it’s not too late to catch the next one if you join us here.
Your Only Option,
Mark Sebastian