Playing some oil and gas stocks that could get a Trump boost using options

Posted By: EN Todayon: November 07, 2024In: General Energy News, Oil & Gas News

Considering sectors or industries likely to benefit from a new Trump administration, some have remained moribund for several years and remain well below their all-time highs even after rallying sharply Wednesday. That leaves a trading opportunity to capitalize on using options. For example, there are several such stocks in the energy sector — a topic of debate in the swing state of Pennsylvania where some of Kamala Harris’s prior statements about a Federal ban on fracking may have had some voters wondering whether a critical industry in their state might suffer. Traditionally Republicans have been more significant friends of the oil and gas industry. Increasing domestic oil production would theoretically achieve several goals for the new administration: increase domestic economic activity and employment, increase domestic energy security, and lower oil and gas prices. Interestingly, oil and gas production in the United States right now, the world’s largest producer, has never been higher, and oil and gas prices, while well above pre-COVID levels, have stabilized. Increasing production, if that’s possible, might not benefit all energy sector participants equally. The incoming Trump administration will likely reduce federal regulations on drilling, pipeline development, and environmental protections that limit the expansion of oil and gas projects. This deregulation could reduce costs for companies in oilfield services and speed up project approvals. The Biden administration has enforced stricter regulations focusing on reducing fossil fuel reliance. Biden has limited new drilling on federal lands and promoted more stringent standards, although these were loosened/accelerated a bit more recently. During his first term, Trump expanded drilling rights on federal lands and offshore areas, which some suggest may have more capacity for expansion than on-shore production, which opened up more opportunities for oil services to support exploration and drilling. His administration also relaxed restrictions on Arctic drilling despite limited interest in those leases. Trump supported pipeline projects like Keystone XL and Dakota Access. This infrastructure investment benefits the oil services industry by enabling more accessible transport and new development projects, which Biden canceled. The trade The incoming administration will likely reduce regulatory pressures, promote expansion in the North American oil services industry, and expedite permitting on drilling and infrastructure projects. These actions will be particularly beneficial for the industry, which has been essentially dead money since early 2020. One way to play this trade through the inauguration is with a “poor man’s covered call,” what we generally refer to as a diagonal call spread — purchasing a longer-dated call and offsetting the decay by selling nearer-dated calls against it. SLB YTD mountain Schlumberger, YTD We’ll give an example in a name like Schlumberger Ltd. (SLB) . Buy SLB March 21 $45 call Sell SLB Dec. 20 $47.50 call One could consider a similar structure in Halliburton , although bear in mind that company has higher exposure to North America onshore. Buy HAL Apr. 17 $31 call Buy HAL Dec. 20 $34 call DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.