Oil Looks Poised For Solid February Based On History

Includes: BHI, BP, COP, HAL, RIG, SLB, XOM
by: David Ristau

Using historical analysis often shows seasonal patterns that can be used to understand the market. The following article will examine if there are any significant historical trends to pay attention to in oil that would be key to traders and investors while understanding how these trends can play a part in the fundamental landscape of commodities. At the end of the article, we will try to gather the information into some tradeable plays.

In our research, we looked at how oil typically does in the month of February, We looked at the average gains of oil companies, their max drawdowns and gains as well as the number of times that their average gains has increased or decreased. The companies we investigated in the report were Baker Hughes (NYSE:BHI), BP (NYSE:BP), Transocean (NYSE:RIG), ExxonMobil (NYSE:XOM), ConocoPhillips (NYSE:COP), Halliburton (NYSE:HAL), and Schlumberger (NYSE:SLB).

Below you can find the average gains for the past 17 years.

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From the chart above it can be seen that typically February has been a great month for oil. 6 out of the 7 companies showed gains and the only company that didn't show any gains also did not show any losses either so it had the rare occurrence where average gains of 0% were experienced. Of the companies that showed gains, mentions goes to RIG and HAL and SLB who showed gains greater than 2% in February making them great candidates for bull put spreads with March expiration. Compared to out January analysis February is definitely looking good.

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We then proceeded with our research by finding out the max gains and max losses that these companies typically have in the month of February. From the chart above it can be seen that most companies had very similar max gains and max losses throughout February. If we concentrate our attention to the companies that had the highest average gain (RIG, SLB and HAL) we can see that they also have some of the highest max gains which might have influenced our results. RIG for example has the highest max gain of 24% while it also has a very high max loss of -19.32. This volatility can be traded using Iron Condors. What we needed to make sure was that these gains were not one offs that affected the average gains greatly therefore skewing our judgment when it came to making tradable plays so we looked at our next chart for further guidance.

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From this chart we can see that both HAL and SLB have had positive monthly gains more times than they have had negative ones. This is helpful because now we can confirm that the max gains of the previous chart were not outliers and that the majority of the times both these companies report positive gains in the month of February. It can also be seen in this chart how BHI also has a history of having gains more times than it has losses. This fact is very important in making tradable plays.

From our analysis we came up with two plays:

Trade #1: Halliburton , Mar16, Bull Put Spread

Trade #2: Baker Hughes , Mar16, Bull Put Spread

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The Oxen Group is a team of analysts. This article was written by Bruno Massinga, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.