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Halliburton Company (NYSE: HAL) has moved higher over the past month as oil prices have been climbing steadily higher since August 23. HAL shares are on the rise again today as crude oil futures are up about 0.6% on the day. If you think the stock won't drop by too much in the coming months, then now could be a good time to look at a bullish hedged trade on HAL.
After hitting a one-year high of $38.29 in July, the stock has dropped and bounced back sharply over the past two months. HAL opened this morning at $36.47. So far today the stock has hit a low of $35.70 and a high of $36.47. As of 10:50, HAL is trading at $36.32, up $0.49 (1.4%). The chart for HAL looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverages nice returns. For this particular trade, we will make an 8.7% return in less than 5 months as long as HAL is above $30 at January expiration. Halliburton would have to fall by more than 17% before we would start to lose money.
HAL hasn't been below $30 since February and has shown support around $32 recently. This trade could be risky if crude oil prices slip from their very high levels, but even if that happens, this position could be protected by the strong support the stock formed between $30 and $32 over the spring months, plus its 200 day moving average, which is currently at $33 and rising.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent controls a bullish hedged position in HAL.
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Reader Comments (Page 1 of 1)
9-12-2007 @ 4:22PM
Melissa Kemper said...
The oil companies are getting rich with record earnings last year and sure to be this year. If you really want to boost the economy, then lower the gas prices to under $1.50!
As far as the supply - we have gas available in our own country that is reported to be enough to last thousands of years.
10-08-2007 @ 9:29PM
Sherry said...
Shame on you!! Shame on all oil companies. Lining your pockets at our expense. But, we are in the USA, and I doubt seriously if anything will ever change.