Back in February, I tagged Memorial Production Partners (MEMP) as my favorite oi-related play. Overall, MEMP was a great trade, but I had intended to hold it for a much longer time. After breaking its 50-day moving average for the second time in March, I put MEMP on the “sell” list. I sold on the next bounce, which happened to be in early April, and locked in my profits. I only collected one dividend payment.
After that point, MEMP continued to follow its 50DMA before breaking down for the last time on May 7, 2015. This was the day after MEMP reported earnings and Raymond James responded with a downgrade from Strong Buy to Outperform. A little over a month later, with MEMP trading down to about $15, Wunderlich issued a buy rating with a $19 price target. Unfortunately, what little momentum MEP mustered after that recommendation was stopped cold by resistance at the 50DMA. Starting July 13th, MEMP has sold off hard and fast along with the renewed decline in oil prices. So, if MEMP was good to go at $15, it is an outright steal at $12.67. Wunderlich’s price target now delivers a 50% upside for capital gain. The yield on MEMP is sitting at a juicy 14.7%.
Source: FreeStockCharts.com
I am assuming the market fears a dividend cut and has forgotten that most of MEMP’s oil production is hedged out to 2020. So, I am going to take this opportunity to buy right back into MEMP. As the chart above shows, the stock is now closing in on a major low from December around $11.80. This low is MEMP’s all-time low.
The technicals are NOT favorable at this juncture, so I am preparing to buy a second tranche at lower prices if the opportunity arises. A break of all-time lows will NOT push me out the stock; instead, I will be looking to make my second purchase at that point. Only a severe and adverse company-specific event will trigger a sell.
Finally, note that put buyers descended upon MEMP in the past week. On July 15th, Briefing.com reported that the October $12.50 puts saw volume of 3430 versus an open interest of 190. Open interest now stands at 4,384. For perspective, the only other MEMP option strike with a larger open interest is the CALL option with an October $15 strike at 10,287 open interest. Next on the list are the puts and calls at the October $17.50 strike with 1,489 versus 1,395 open interest respectively. So, the overall options position for MEMP remains relatively bullish.
Be careful out there!
Full disclosure: no positions