Trade Oil and China with Just One Stock

05/01/2012 9:35 am EST

Focus: STOCKS

One of China's premier oil stocks represents a compelling play on energy and the emerging giant, writes Greg Harmon of Dragonfly Capital identifying seven potential stock and option trade ideas.

China National Offshore (CEO), through its subsidiaries, engages in the exploration, development, production, and sale of crude oil, natural gas, and other petroleum products.

The stock broke above long-term resistance at $203.50 to start February, getting as high as $235, where a lot of consolidation took place in mid 2011. After pulling back and finding support at the 200-day simple moving average (SMA), it is now moving back higher.

It has support for more upside from a rising Relative Strength Index (RSI) that is on the verge of turning bullish and a Moving Average Convergence Divergence (MACD) indicator that has been trending higher since April 9 and recently crossed positive. A symmetrical move higher would take it to $255 by mid July.

There is resistance higher at $220 and $224 followed by $230 and $234 before $240 and $250. Support lower is found at $203.50 and $197 followed by $194.50 and $190.45. Below that, key support is at $173-$178.

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Stock
Trade Idea 1: Buy the stock using a stop at $203.50. Convert it to a $5 trailing stop on a move over $220.

Short-Term Options
Trade Idea 2: Buy the June 220 calls using a stop on the stock at $203.50. These were offered at $4.20 late Friday.

Trade Idea 3: Sell the June 190 puts using a stop on the stock at $203.50.These were bid at $2.80 late Friday.

Trade Idea 4: Buy the June 220/190 bullish risk reversal using a stop on the stock at $203.50. These were offered at $1.40 late Friday.

Medium-Term Options
Trade Idea 5: Buy the September 220 calls using a stop on the stock at $203.50. These were offered $10.90 late Friday.

Trade Idea 6: Buy the September 220/250 call spreads using a stop on the stock at $203.50. These were offered $9.05 late Friday.

Trade Idea 7: Buy the September 220/250 call spreads, selling the 190 put using a stop on the stock at $203.50.These were offered for a five-cent credit late Friday.

By Greg Harmon of Dragonfly Capital

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