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Where Is Marathon Oil Headed?


Hedge funds are bullish on this stock.

Marathon Oil (NYSE:MRO) is up 7.5% in 2013, trading above its 50-,100-, and 200-day moving averages of $33.90, $32.40, and $29.95, respectively. Shares touched their 52-week high of $35.86 on February 19, prior to pulling back below the $32.00 level.
Having spun off its downstream operations into Marathon Petroleum (NYSE:MPC), Marathon Oil's operations are now focused purely on exploration. Marathon has had operations in the Bakken Shale in North Dakota and Montana since 2006, which are currently producing around 33,000 barrels per day. Production is expected to reach 38,000 barrels per day by 2016, revised upward from an estimate of 33,000 barrels per day. Marathon also has significant assets in Texas's Eagle Ford shale. Both of these shale formations are liquid rich, meaning they have a relatively high concentration of oil compared to natural gas. This is attractive at a time when oil prices are high and natural gas prices are relatively low.
Hedge funds are bullish on the stock as well, with T. Boone Pickens's BP Capital holding the largest stake, and several other prominent funds increasing their stake. This week also saw some May 37 call buyers, which is indicative of further bullish sentiment. The stock appears to be preparing for another run past the $35.00 level.
My Trade: Buy the MRO 34-35 call spread for $0.42
Risk: $42 per 1 lot
Reward: $58 per 1 lot
Breakeven: $34.42
Greeks of this Trade:
Delta: Long
Gamma: Long
Vega: Long
Theta: Short
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No positions in stocks mentioned.
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