A short squeeze could add fuel to the oil stocks' fire
Oil prices are trading in territory not charted since late 2014, with February-dated crude futures last seen 1.7% higher at $62.79 per barrel. Against this backdrop, several oil-and-gas stocks are also higher today, including WPX Energy Inc (NYSE:WPX) and HollyFrontier Corp (NYSE:HFC). What's more, WPX and HFC stocks could extend their upward momentum in the near term, if history is any indicator, and both equities sport relatively cheap short-term options right now.
Short Squeeze Could Fuel WPX Gains
WPX Energy stock is up 1% at $14.45, aiming for its highest close in nearly a year, with help from a price-target hike to $17 from $14 at Simmons -- an area not charted in three years. Since their June low of $8.39, the shares have rallied more than 72%, taking out former resistance in the $14 area. In fact, WPX touched a fresh annual peak of $14.61 on Jan. 3, yet near-term options remain a relative bargain.
The stock's Schaeffer's Volatility Index (SVI) stands at 36% -- in the 10th percentile of its annual range, pointing to muted volatility expectations being priced into short-term options. Since 2008, there have been just three other times in which WPX stock was trading within 2% of a 52-week high while sporting such a low SVI. After these signals, the shares went on to rally 7.71% in the next month, on average, per data from Schaeffer's Senior Quantitative Analyst Rocky White.
From current levels, another 7.71% surge in the next month would place WPX Energy shares around $15.56 -- in a neighborhood not explored since late 2016. Plus, a short squeeze could help drive the stock higher. Short interest represents nearly a week's worth of pent-up buying demand, at WPX's average pace of trading.
HFC Stock Could Hit Record Highs
HollyFrontier stock is up 0.2% at $51.80, and earlier notched a fresh annual high of $52.07. Bolstering the shares is a price-target hike to $65 from $57 at Barclays -- a target that would mark a record high for HFC stock, and representing expected upside of 25% from current levels. The brokerage firm attributed the generous new target to the recent U.S. tax bill, which it says will be a "massive boon" for domestic refiners.
HFC shares have been virtually unstoppable lately, more than doubling since their late-May low of $23.46. In fact, the stock is on track for a seventh straight weekly gain, yet as with WPX, HollyFrontier options are on sale.
Specifically, the security's SVI of 26% is higher than just 6% of all other readings from the past year. There's been just one other time since 2008 when HFC was flirting with new highs and simultaneously had an SVI in the bottom 10% of its annual range; after that signal, the shares rallied 8.35% in the subsequent month. A similar surge from current levels would put HFC stock around $56.12 -- north of its March 2013 all-time high.
More upbeat analyst attention could also lure buyers to the table. Despite the stock's outperformance, just four of 14 brokerage firms deem HFC worthy of a "buy" or better endorsement, leaving the door wide open for potential upgrades. Plus, it would take almost a week to buy back all of the shorted HollyFrontier shares, at the equity's average daily trading volume -- plenty of fuel for a short squeeze.