Chevron (CVX)
By Mon, Feb 7, 2022
Hey,
Energy prices are on the rise, and inflation is going to keep them there.
That’s why today’s Chart of the Week comes from that sector.
Chevron (CVX) has been one of the sector’s biggest winners since 2020, and looks ready to break through its major resistance with a bang.
For anyone looking for a straight stock play, we are long in CVX above 135 with a target of 185.
But this week, instead of a straight stock play, we’re looking at a long term options move here.
The question we’ve been asking ourselves is “do we think we’re in the early stages of a commodities supercycle bull market?
In the bigger picture, absolutely.
So we’re going to lean into that and “let it dance.”
Today, we’re doing something we’ve never done here. We’re making a long-term bet utilizing LEAP options.
“LEAP” is an acronym for Long-Term Equity Anticipation Securities. Essentially, this means we’re taking a position in options that have greater than a year until expiration.
This means we can go long in Chevron without the short term volatility we’re seeing in the market lately.
This isn’t next week, or next month, or even next year…
It’s a long-term play that gives us added exposure to energy over the next couple years.
We think CVX can easily move $20 higher over the next two years, which means we are buying the CVX January 2024 150-strike call options for any price less than $12.00 per contract. This upfront debit is the most we can lose if we’re dead wrong.
We’ll look to sell half of our position if/when we get a double in the value of our holdings. So, assuming a $11.00 initial purchase price, sell half of the position at $22.00 and enjoy a “free ride” for the remainder of the duration until Jan 2024 expiration!
Til next week, good trading,
JC Parets
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About the Author
JC Parets, founder of All Star Charts, specializes in finding the most opportunistic risk vs. reward propositions while at the same time bringing a top/down approach to the marketplace whose wide spectrum is rivaled by few. JC begins with a long-term global macro perspective and then works his way down to the individual sector and industry level before ultimately isolating the stocks that best portray a particular thesis. Price is the most important technical indicator, but JC uses supplements such as Momentum, Relative Strength, and Fibonacci analysis to complete the process.
