Options Trade of the Week 
Occidental Petroleum Corporation (NYSE:OXY) Calls
Monday, August 18, 2014

**OPTIONS TRADE: Buy the OXY Jan 2015 110.000 call (OXY150117C00110000) at or under $1.50, good for the day. Place a protective stop limit at $0.60 and a pre-determined sell at $2.80.

by Ian Harvey


August 18, 2014


Oil prices are off over 10% from the highs of the summer, due to much more oil than was expected, which flooded the market, because of a growing supply out of OPEC and the United States, which is great news when it comes to this options trade.

One company that stands to benefit is Occidental Petroleum Corporation (NYSE: OXY), an oil and gas exploration and production giant, which has operations all over the U.S. and Middle East.

The company reported second-quarter earnings on July 3, posting results that demonstrate its strength. Earnings per share and production grew last quarter, as well as over the first half of the year, driven by its oil fields in California and in the Permian Basin.

Technical Details

Occidental Petroleum has a 52-week low of $84.91 and a 52-week high of $105.64. The stock has a 50-day moving average of $100.5 and a 200-day moving average of $97.17. The company has a market cap of $78.275 billion and a price-to-earnings ratio of 13.18.

Support for Options Trade

Occidental Petroleum was the target of unusually large options trading on Thursday last week. Stock investors purchased 19,872 call options on the stock. This represents an increase of 374% compared to the typical volume of 4,194 call options.

Also, one trader, on Thursday, bet big on OXY stock by buying 50,000 OXY January 110/120 bull call spreads, which is a $6 million outlay in pure option premium.


Occidental Petroleum last released its earnings data on Thursday, July 31st. The company reported $1.82 EPS for the quarter, beating the Thomson Reuters consensus estimate of $1.75 by $0.07. The company had revenue of $6.28 billion for the quarter, compared to the consensus estimate of $6.04 billion.

During the same quarter in the prior year, the company posted $1.64 earnings per share. The company’s quarterly revenue was up 5.2% on a year-over-year basis. On average, analysts predict that Occidental Petroleum will post $7.31 earnings per share for the current fiscal year.

In Brief

• Occidental's revenue and diluted earnings per share rose 5% and 11%, respectively, last quarter.

• Production of oil in the United States rose 8% last quarter and reached 278,000 barrels per day, which is a company record.

• Occidental is the largest operator and largest producer of oil in the Permian Basin. • The company is also very active in California, another premier oil-producing area of the country. Oil production there rose 10% last quarter, to 97,000 barrels per day.

• Oil is becoming an increasingly important part of Occidental's business, and going forward, the company will be heavily reliant on domestic oil.

Future Earnings

Occidental's core strategy is to focus mostly on oil production in the United States, instead of natural gas. There have been some drastic strategic changes that will improve its momentum in the future, such as:-

• Separated its California natural gas business earlier this year. Occidental Petroleum plans to separate its California assets into a separate, independently traded company. The new California company will be headquartered there and will be the state's largest natural gas producer. And, Occidental separately struck a deal to sell its natural gas assets at the Hugoton Field for $1.4 billion.

• Between its geographic split, domestic oil now represents 61% of total production, with 39% of production coming from international markets – which means the potential for significant cost improvement in its domestic fields.

• Improvements in drilling technology and other operational efficiencies are driving significant cost savings at home. Occidental saved $900 million in capital last year as a result of efficiency moves.

• Not surprisingly, then, Occidental plans to focus the vast majority of future investment on oil production in the United States. Management states that nearly all of the $1.4 billion increase in capital investment this year versus 2013 will go to oil projects.

Analysts Opinions

Occidental Petroleum (NYSE:OXY) was downgraded by investment analysts at Simmons from an “overweight” rating to a “neutral” rating in a note issued to investors on Wednesday, last week.

The company has been the subject of a number of other research reports:-

• Analysts at Morgan Stanley upgraded shares of Occidental Petroleum from an “equal weight” rating to an “overweight” rating in a research note on Monday, August 4th. They now have a $120.00 price target on the stock, up previously from $110.00.

• Separately, analysts at Barclays cut their price target on shares of Occidental Petroleum from $120.00 to $117.00 in a research note on Monday, July 21st. They now have an “overweight” rating on the stock.

• Finally, analysts at Deutsche Bank raised their price target on shares of Occidental Petroleum from $110.00 to $114.00 in a research note on Thursday, July 17th. They now have a “hold” rating on the stock.

Six equities research analysts have rated the stock with a hold rating and twelve have issued a buy rating to the company. The stock currently has a consensus rating of “Buy” and a consensus target price of $111.69.


Occidental Petroleum is making big moves that will make the future company much different than the Occidental of the past. It's unloading considerable natural gas assets to focus almost entirely on domestic oil production. This makes a lot of sense, since oil production in the United States is reaching levels not seen in several decades.

The strategy is already working, as production and profits are heading in the right direction. The end result is that Occidental's earnings report last quarter proves what a strong company it is.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the OXY Jan 2015 110.000 call (OXY150117C00110000) at or under $1.50, good for the day. Place a protective stop limit at $0.60 and a pre-determined sell at $2.80.

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