NEW YORK (TheStreet) -- Since 1971 Devon Energy (DVN) has been in the oil and gas exploration and production business. Its timeline is proof of its staying power in one tough industry that has seen plenty of ups and downs.
Devon's focus is on North American energy properties. Thus, its stock and shareholders are insulated from international problems that tend to pop up and affect the world's supply of energy. At times, this has been an asset for DVN.
Today the big focus in the oil and gas world is the price of oil, as we all know that it has been rather volatile over the past year. One year ago, DVN was trading around the mid $70s and then climbed to $80 by the end of June. After that, it went south, trading by mid-December at its current 52-week low of just below $52.
The recent high was more than $69 reached one month ago. However, if you look back six months ago and compare the price movement of DVN to the U.S. Oil Fund ETF (USO), you will find that DVN has gained 9% in price over this time frame (back to December 2014), while USO has lost 23% of its value! That divergence of price performance is potential "bar bet" intel! And it speaks well to Devon's current stock price, especially should oil move up in price over the coming summer months.
Fundamentally DVN is a well-managed company with a decent enough balance sheet to be able to handle whatever pops up next in the oil sector. DVN has for years now been mentioned as a possible takeover candidate, which tends to keep the shorts at bay if nothing else.
Technically DVN has a one-year stochastic and RSI that while not yet turning bullish are more in neutral territory as I read the charts. What makes DVN quite interesting for me now is that the stock is as coiled as coiling can get. Thus, the options volatility is near to at the bottom of the cycle, which helps the risk/reward ratio of any long gamma options trade.
This trade is very high risk due to both its shortened time to expiry (July) and the required upward price move necessary as the trade is an out-of-the-money call spread.
Trades: Buy to open DVN Jul 67.5 calls for $1.25 and sell to open DVN Jul 72.5 calls at $0.25.
The total risk for the trade is $1.00. The suggested target to close for a gain is a bid of $1.40, or better. The suggested target to stop out the trade is a bid of $0.60.
As always, this is a guideline, and you should always stick to your trading plan and what's best for your risk/reward tolerance.
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Skip Raschke writes regularly for Options Profits. You can get his trades first and interact with him there with a free trial.