It has been a wild year in the oil sector.
Between the coronavirus crisis denting demand and an oil price war between Russia and Saudi Arabia earlier this year, oil stocks have been hit hard in 2020.
And Occidental Petroleum (NYSE: OXY) has been one of the hardest hit names, falling more than -67% so far this year.
Occidental is down -8% over the last week after news broke that Warren Buffett’s Berkshire Hathaway exited its investment in the oil stock, selling its 18.9 million shares.
But Buffett’s loss could prove to be another trader’s gain. That is, if their bet on a huge turnaround n the stock pays off.
“About 8,000 by 12,000 of the [November] 16 and 20-strike calls traded respectively for [a net price of] about 60 cents per contract,” said Michael Khouw, chief investment officer at Optimize Advisors.
Khouw’s bet amounts to around $475,000 in premium, and it could be a long shot for the stock to get where he needs it to be. The spread breaks even around $16.60 on the underlying stock, or around 24% higher than the stock’s price as of this writing, with the profits maxing out at just under 50% higher than where the stock is now.
“I think when we look at this situation, obviously the stock’s in dire trouble, it’s been behaving very badly,” Khouw said. “It’s possible that buyers of calls here are speculating now that some of that selling pressure has been lifted because Buffett has exited his position, and there may be some upside.”