OXY: Reader's Choice

This complimentary article from Options Profits was originally published on April 24. Don't risk missing over 40 options trade ideas every week, exclusive commentary and webinars from over 15 experts. Click here for more information and a 14-Day Free Trial.

One of our Options Profits readers requested a play in Occidental Petroleum (OXY) in the April 16 Weekly Chat Forum. Jill creates a new forum each Monday morning by 7am ET and it is the perfect place to share ideas and ask us for trade specific content. Pay attention for the email alerts each Monday and you can also find the forum via searching Jill's name in the box at the upper right or by clicking on the events tab.

OXY will report Q1 earnings on Thursday. Consensus expects earnings for 2Q12 $1.94 per share versus $1.96 2Q11. For FY12, OXY is expected to also show little to no growth in earnings per share. Eventually almost all stocks move up or down based on earnings growth and dividend growth, or lack there of. For OXY this fiscal year is shaping up as a "lack of" year as per any earnings growth. With the price of $4.00 per gallon gasoline today relative to the price of oil, somebody is making plenty more money than they ever have. OXY appears not to be one of those "somebodies". Who is on that somebody list is still a mystery, at least to me. But I have to cross off OXY.

OXY does have decent earnings in dollar terms, plenty enough so that if management chose to spend some of it to boost the dividend that would not be a problem. OXY currently yields 2.40% on that dividend, paying out $2.16 per share annually. With FY12 earnings expectations at $8.46 per share and consensus at $9.48 for FY13, OXY should be considered a low risk, good reward potential stock with an excellent chance to raise the dividend as earnings eventually improve over the next year.

Before we get into the options position, let's review the T3/OP video with JIll and Scott as they review the fundamental and technical cases for OXY: