Consider Call Options on Noble Energy, Inc (NBL: NYSE)

Noble Energy, Inc (NBL: NYSE) is currently trading at $36.79 after falling 2.28%. The stock has a 52-week trading range of $29.13 on the low end and $58.02 on the high end. At present prices, the company’s market capitalization is $15.63 billion. The earnings per share are -0.07, the dividend is 0.72 and the yield is 2.16%. In terms of future projections for the stock, the general consensus among analyst is that the stock will fetch a price of $45.39 as its 1-year estimate. On a scale of 1 – 5, with 1.0 being a strong buy and 5.0 being a sell, the consensus opinion is that Noble Energy, Inc (NBL) is a buy. In fact, the stock is currently highly undervalued, as are most energy stocks right now. The low price target is $36 and the high price target is $60.

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While some analysts consider it a hold, I’m going to get off the fence and say that call options should be placed for the week. The strength of the stock include its strong financial position with debt/liquidity measures. On the downside, the stock has not fared very well of late with the pressures on commodity prices and declining net income and ROE. As an investment, the stock may not do well in the medium-term, but as a short-term binary option trade the stock is on the up and up. In late October, Cowen & Co gave the stock an outperform rating with a price/target of $52. Since the company has massive interests in Israeli natural gas, we can expect approval of the framework in weeks. Even if the share price rises by $2 for the Israeli approval that is significant enough to generate a profit with call options in binary trading.

Index: Consider Put Options on S&P 500 Index

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The reason I’m going short on the S&P 500 index has less to do with the actual performance of companies in the index as it does with the recent performance of the US economy. Bond yields have gained and dollar strength is on the up and up. Non-farm payrolls numbers are substantially higher than forecast figures and this means that the Fed is more confident than ever before about raising interest rates at the December 15/16 FOMC meeting. During October, 271,000 jobs were added and the consensus forecast was 185,000. Unemployment has dropped by to 5% from 5.1%; further evidence of a strongly recovering economy. You may be wondering how a bullish economy and the prospect of a rate hike impacts on the S&P 500 index? When interest rates rise, equities performance declines. And since all the data has just been released there is bound to be further bearish sentiment at the start of the trading week. We have seen sharp gains in bond yields, and bank stocks are getting a boost ahead of a potential windfall in interest-related earnings. We are seeing a strong USD decreasing the appeal of dollar-denominated commodities. Energy and mining stocks are trending lower. I am of the opinion that the US economy is tightening in a big way – it’s evident all around. A rate hike is coming. When consumer credit is more expensive, it becomes more difficult for equities markets to perform strongly.

Commodity: Consider Put Options on Crude Oil

The price of crude oil has come under pressure of late and this is expected to continue in the weeks moving forward. Again, a strengthening US economy (non-farm payrolls and unemployment data) are making a strong case for a rate hike in December. Reuters polls and Bloomberg polls already indicate that among analysts the general perception of a December rate hike is close to 80%. The price of Crude oil plunged as news broke of 271,000 jobs being added in October. Average hourly earnings increased by 0.4% during October and all signs are pointing a Fed rate hike. What the Fed rate hike does to the price of oil is directly correlated to what it does to the USD. If rates increase, then the dollar strengthens. This will then draw in additional supply to an oversaturated market which will drive down the price. And since the USD is strong relative to other currencies, higher prices will not be affordable especially in an era of weak demand. So we see the price of Crude moving sharply lower. My advice to you is to place put options on Crude oil this week.

Currency: Consider Put Options on the USD

Your decision about which currency to go long on is a no-brainer and traders should consider call options. It makes sense to go long on the USD given all the encouraging jobs data and unemployment numbers that have been released. The US Dollar Index is surging and this is a great barometer of overall sentiment for the greenback. A Fed rate hike increases dollar demand and we are seeing strong evidence of this in the 99.168 level of this index.