ConocoPhillips

New York Stock Exchange
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Slightly Bullish +25

Is ConocoPhillips Stock at a Peak? - Covered Call COP Plays Look Attractive

AI-generated analysis

📉 Oil prices, specifically West Texas Intermediate, have dropped from a peak of $98 to around $88, raising concerns that ConocoPhillips (COP) stock may also be nearing a near-term peak.

📈 COP stock has risen for three weeks following the start of war in Iran, closing at $127.19 on March 23.

💰 Analyst price targets for COP have increased to an average of $123.67 according to Yahoo! Finance, though AnaChart.com shows a higher target of $149.88 from 18 analysts.

🧾 A previous covered call strategy suggested on March 2 was profitable, with strike prices now in-the-money but generating capital gains and premiums totaling approximately $3.50 per share.

📝 One recommended strategy is to sell April 24 out-of-the-money call options at the $136.00 strike price for a midpoint premium of $2.20.

💡 Selling this covered call would yield an income of 1.73% over one month, with total potential returns reaching 8.66% if the stock rises to $136.00.

🎯 An alternative is to sell April 24 out-of-the-money put options at a $120.00 strike price for a premium of $2.33, offering a yield of 1.94%.

🛡️ Selling OTM puts provides a breakeven point around $117.67, allowing investors to buy shares at a lower price even if the stock falls below current levels.

🔄 Experienced investors can hedge their positions by combining short calls and short puts to create an income buffer that acts as insurance against downside or upside moves.

⚠️ For new investors, buying COP shares at today's price is required before selling options to establish a "covered" position for call selling strategies.

📅 The article was written by Mark R. Hake, CFA, who disclosed no positions in the mentioned securities as of the publication date.

⚖️ All data presented is for informational purposes and references alternative investment plays available on Barchart.com.

Bullish Signals
  • Analysts have raised their price targets for ConocoPhillips (COP), with the average now at $123.67 according to Yahoo! Finance, up from $116.48 reported in March.
  • AnaChart.com tracks analyst write-ups showing an average price target of $149.88 per share among 18 analysts, which represents an 18% upside from today's trading price.
  • Selling covered call options on COP can generate a total potential return of +8.66% to +9.30% over the next month if the stock rises to the strike prices while providing income yield between 1.56% and 1.73%.
  • For existing shareholders, the covered call strategy allows investors to collect option premiums that act as a cushion or insurance, enabling purchase of higher strike price calls for additional upside potential.
  • Investors can also sell out-of-the-money (OTM) put options at a $120.00 strike price, which offers a short-put yield of 1.94% and provides protection by allowing them to buy shares at a lower point if the stock falls.
Risk Factors
  • Oil prices near a short-term peak and West Texas Intermediate contracts are down from $98 to $88, potentially lowering ConocoPhillips stock performance.
  • ConocoPhillips closed at $127.19 on March 23, up for the past three weeks due to Iran war turmoil, but uncertainty about oil price stability remains a downside risk.
  • Yahoo! Finance average analyst price target is $123.67, which is below the current stock price of $127.19, suggesting possible overvaluation by some analysts.
  • If oil prices continue to decline from their recent peak, it could negatively impact ConocoPhillips earnings and stock valuation in the near term.
Full Analysis
ConocoPhillips (COP) stock has risen over the past three weeks following geopolitical tensions related to the war in Iran, yet analysts suggest oil prices may be near a peak in the short term. West Texas Intermediate crude peaked at $98 before falling to approximately $88, and COP closed at $127.19 on Monday, March 23. Despite some analysts raising their price targets—Yahoo! Finance cites an average of $123.67 among 28 analysts up from $116.48, while AnaChart.com shows 18 analysts with a higher average target of $149.88—the volatility presents opportunities for options trading strategies such as covered calls. The article proposes selling out-of-the-money call options to generate income, noting that previous recommendations on April 2 expiry for $123 and $124 strikes are now in-the-money but profitable due to capital gains. For new positions, an investor buying 100 shares could sell a $136 strike price option expiring April 24 with a $2.20 premium, yielding 1.73% over one month or up to 8.66% total return if the stock reaches the strike. Alternatively, a $137 strike price offers a slightly lower 1.56% yield but a higher potential total return of 9.30%. For investors seeking a lower entry point, selling out-of-the-money puts on April 24 at the $120.00 strike is suggested, offering a premium that generates 1.94% annualized yield. This strategy provides downside protection with a breakeven point of $117.67 if the stock drops to the put strike, effectively paying an investor to wait for a lower price. Advanced strategies may involve combining short covered calls and OTM puts to hedge unrealized losses: using combined option income to buy higher strike calls as insurance on upward moves, or utilizing long put contracts if the stock falls below the short-put strike.