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July 16th, 2024
Trade Idea: OXY $62.00 (Occidental Petroleum Corp.)
Buy November 15th $62.50 Calls $3.60
>>> On July 18th 10:30am EST, we sold the OXY September 20th $70 Calls at $0.80.
I've been closely watching Occidental Petroleum (OXY) for a pullback, and the current risk-reward dynamics, particularly due to a declining share supply, suggest a potential for upward movement. This could be an opportunity to capitalize on increased demand leading up to the election.
Buffett
Warren Buffett has steadily increased his stake in OXY, now owning over 255 million shares, which represents a 28.8% stake in the company. His purchases are usually near the $60.
Additionally, he holds warrants to purchase another 83.9 million shares at $59.62 each. If these warrants are fully exercised, Buffett’s ownership would exceed 40%.
Other Holders
OXY’s market cap stands at $55Bn.
The top 10 shareholders, including Buffett, hold over 70% of the company. The next nine largest holders collectively own about $18.5 billion worth of OXY, representing roughly 33%. These specific holders are known to be a “sticky” buy & hold group.
Supply & Demand
This is a classic case of supply & demand shifting over time. Consider that OXY stock spent the last 2.5 years digesting the move from $10 to $60.
This alludes to the early investors, who bought from $10 to $40, likely selling shares to take profits over the last few years.
With Buffett acquiring a significant amount of those shares, the supply of OXY stock in the market has been substantially reduced.
If demand for OXY stock increases, the price could rise quicker than usual due to the reduced supply. This scenario is reminiscent of my previous analysis of MGM, where recent good news and rising demand led to a stronger price movement relative to the sector.
In Former President Trump's first term, the oil sector reported solid gains. With Trump leading in the polls, I suspect the oil sector can catch a bid heading into November.
The Trade
While there are options buyers in August and September, make no mistake, the “unusual” buyer is Buffett. He appears to be backstopping the company near $60.
OXY, along with the sector, has had a pullback since mid-April. However, the big oil stocks are currently trying to turn back higher here.
Earnings are expected on August 7th, and we likely get a second earnings report in early November.
A deep recession poses a notable risk, which may have a higher probability than the market expects.
I like the OXY November 15th $62.50 Calls for $3.60. The Target Stock Price Range is the recent high of $71.
Note: If the stock moves toward $64-$65, look to sell the September $67.50 or $70 Calls. The $70s at >$0.70 would be ideal. At the same time, we would look at the November upside calls as well, they might be better.
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The Results Are In...
4th Quarter 2023 Results
Oct. 1st - Dec. 31st
28 Trade Ideas were given during this period with 20 reaching Triple-Digit Returns, or 71.4%. Of the 8 Trade Ideas that did not reach 100%, 6 of them were Puts. Yes, we hedge ourselves to manage risk.
+1,351% TSM Calls
+738% IOVA Calls
+525% NVO Calls
+480% OSTK Call Spreads
+449% UBER Calls
+408% INTC Calls
+250% SPY Put Spreads
+212% AEO Calls
+191% JPM Call Spreads
+181% BABA Call Spreads
+154% MGM Calls
+150% PYPL Calls
+132% MGM Calls
+129% LVS Calls
+120% GLD Call Spreads
+115% KVUE Call Spreads
+111% VRT Call Spreads
+110% INTC Put Spreads
+108% MGM Calls
+100% AFRM Calls
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