Bet on BP plc (ADR) (BP) Stock After Oil’s Rise

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Rising geopolitical turmoil and promises by OPEC to maintain production cuts helped boost oil prices and lift energy stocks across the board. While oil futures declined a few cents Wednesday, oil prices still stand to run should OPEC continue expanding its current agreement.

Why BP plc (ADR) (BP) Stock Still Is Worth the Wait

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Sector leader Exxon Mobil Corporation (NYSE: XOM ) is looking sharp heading into this month's quarterly earnings report, but BP plc (ADR) (NYSE: BP ) could offer better returns for traders heading into it's own first-quarter earnings event.

The energy sector's biggest driver, oil prices, has moved substantially higher in the current market environment. West Texas Intermediate futures were down slightly Wednesday, settling around $53.27 per barrel as of this writing, after oil hit its highest level in a month Tuesday.

While rising tensions between the U.S. and Russia in Syria are providing a bit of upside, promises from Saudi Arabia to extend the current OPEC production cuts for another six months at the group's meeting in May has provided most of the ballast.

As with Exxon, higher oil prices are good for BP stock, and could help bolster the company's guidance when it enters the earnings confessional on May 2.

Analysts are looking for a sharp rise in profits from BP, with expectations set at 41 cents per share compared with earnings of just 17 cents per share in the same quarter last year. Revenue, meanwhile, is seen rising 34.2% to $51.7 billion.

Click to Enlarge Technically speaking, BP stock is having a rough 2017. The shares are down more than 5% so far this year, following a nearly 25% advance in 2016. But BP is looking to get back on track now that oil price appear to be recovering again.

After spending March in consolidation mode between $33 and $34, BP has edged back above all of its major short-term moving averages - even pulling its 50-day and 10-day trendlines into a bullish cross. This development could provide extra buying power for BP shares should technical traders see it as a "buy" signal.

Checking in with sentiment, analysts remain largely on the sidelines when it comes to BP stock. According to Thomson/First Call, seven of the 11 brokerage firms offering up an opinion on BP stock rate the shares a "hold" or worse.

Furthermore, the 12-month consensus price target rests at $37.79, less than 7% above BP's close on Tuesday. With oil poised to move higher and take BP stock with it, there is plenty of room for upgrades or price-target increases that could send the stock higher.

Options traders, meanwhile, appear to be betting on a rally. Looking out to May BP options, the put/call open interest ratio arrives at 0.60, with bullish calls in control among near-term options activity. There is some concern when it comes to earnings, however, as the 5 May put/call OI ratio rests at an elevated reading of 1.17, with puts outnumbering calls for options most affected by BP's quarterly report.

Overall, 5 May implieds are pricing in a potential post-earnings move of about 4.26%. This places the upper bound at $36.49, while the lower bound rests at $33.51. A pullback to the $33-$34 region would be nothing new for BP stock, as the shares spent the past month sidling in the area.

A breakout above $36, however, could be a sign that the recent uptrend is here to stay.

2 Trades for BP Stock

Call Spread: Those traders looking to bet bullish on BP stock might want to consider a May $35/$36 bull call spread. At last check, this spread was offered at 50 cents, or $50 per pair of contracts. Breakeven lies at $35.50, while a maximum profit of 50 cents, or $50 per pair of contracts, is possible if BP stock closes at or above $36 when May options expire.

Put Spread: On the other hand, oil prices remained fickle, leading to erratic price action from BP stock. Traders nervous that these gyrations will lead to more sidling activity might consider a May $33 put sell. At last check, this put was bid at 45 cents, or $45 per contract.

As with all put sells, traders will keep the premium received for entering the trade as long as BP stock trades above $33 through May expiration. If BP were to trade below $33 prior to expiration, then you could be assigned 100 shares per contract sold at a cost of $33 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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