Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Traders,
Bill Griffo here in the Pit Report today.
Occidental Petroleum Corp. (Ticker: OXY) is a large independent oil and gas producer.
It’s a well diversified business, with operations spanning the U.S., Middle East, and North Africa.
They provide gathering, processing, and transport services and separately hold a 51% equity interest in Western Midstream Partners LP (Ticker: WES).
They also have a chemicals business which produces caustic soda (a widely used industrial alkali) and PVC (a construction material).
So they are well diversified … but do they have value?
How do you make money trading OXY?
OXY Valuation
Valuation is the Achilles’ heel for OXY, but it may be trading at a premium since Warren Buffet has been building positions (and may eventually acquire it).
Morning start recently decreased their fair value level to $53 mostly due to the declining market value of OXY’s investment in WES.
It was also driven by an increase in capital spending in 2023, along with higher unit operating costs.
Bottom line is from a valuation perspective buying closer to the $53 – $55 area makes more sense.
Trading OXY
The graph below illustrates the put and call net open interest across all option strikes traded for OXY.
This data is incredibly helpful in determining the true support and resistance levels in a stock based on this net option positioning.
Notice the $55 level which is the strongest support below and the $62 level, the strongest resistance above.
Beyond $55 there is not much put open interest, so the $55 acts as a put wall and the $62 strike acts as the call wall.
As the market hits these extremes traders are incented to book their profits, which increases the probability of OXY reversing its trend.
So, get ready … OXY is heading towards the $55 level. That presents a great opportunity to get in at reasonable levels.
Bottom line: OXY at $55 – $56 is a great buy, especially knowing the Oracle of Omaha is a buyer and may be an owner in the near future
Good luck and as always …
Live And Trade With Passion My Friends,
Bill Griffo