Option Trade Of The Day: Carrizo Oil & Gas Inc (CRZO)
Carrizo Oil & Gas (CRZO) engages in the exploration, development and production of oil and gas in the United States. The company holds interests in properties in Texas, Colorado, Ohio and Texas. The company is based in Houston, Texas and was founded in 1993.[hana-code-insert name=’adsense-article’ /]CRZO is one of the few oil and gas companies with solid fundamentals.
The company sports a return on equity of 29.2%, a profit margin of 23.9% and an operating margin of 30.5%.
Despite these numbers, the short interest ratio on the stock is currently at 5.03, meaning there are five days worth of average trading volume sold short.
Another rally could cause the short sellers to cover their positions and add buying pressure to the stock.
There is a definite pattern to CRZO’s chart. I have circled the last three bullish crossovers from the stochastic readings and have used another tool to show how much the stock gained over the ensuing weeks. The stochastic readings made another bullish crossover in yesterday’s trading and formed a hammer pattern which is also a bullish signal. The overall sentiment registered its lowest reading since September 8 on Tuesday. September 8th was the exact day the stock hit its low.
Buy to open the March18 19 strike calls on CRZO at $2.40 or better. These options expire on March 16. The last three rallies after a bullish crossover in the stochastic readings have averaged just over 40%. A rally of half that size would put these options at a gain of 113%. Should the stock gain 30%, which is just shy of the smallest of the last three events, these options would be just shy of a 200% gain. The company does announce earnings on February 21, so you will want to be aware of that. I would use the $19 level as a stop-loss point.
— Rick Pendergraft
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