Options Corner: How Trump Is Making BP Great Again

Although the runup to the 2024 U.S. presidential election was one of the most contentious events in recent memory, at least one publicly traded enterprise likely breathed a sigh of relief when the results came in. A little more than a year ago, reports emerged that energy giant BP p.l.c. BP was implementing a hiring freeze and had halted new offshore wind projects. The moves were part of a strategic pivot back to oil and gas.

Had former Vice President Kamala Harris won the election, it's possible that this focus on hydrocarbons would have been deemed a high-risk blunder. However, with now President Donald Trump emerging victorious, the decision may be ingenious. Certainly, investors of BP stock can't complain. Since the start of the year, the security has gained over 11%. In contrast, the benchmark S&P 500 index has gained just under 8% during the same frame.

Even better, Trump is a man of his word — when it comes to fossil fuels, that is. Indeed, the administration provided a double confirmation of BP's visionary move. First, the "Big Beautiful Bill" the president signed into law earlier this month reduced incentives for solar and wind projects. Second, it championed traditional energy sources, where oil and gas serve as lynchpins.

With BP reorganizing its C-suite to accommodate the strategic pivot, the company has firmly broken away from its net zero strategy. From a political standpoint, it would seem to be a practical decision. Statista ran a survey that showed that the U.S., Japan and Germany were ideologically becoming more conservative.

Ironically, the U.K. — BP's home nation — was the only outlier among the four countries surveyed, with respondents reporting becoming more progressive. Be that as it may, BP has bills to pay and so it is simply following the money.

Math Is Also Making BP Stock Great Again

While narratives provide important color and context for publicly traded companies, they are functionally useless for options traders. If we're looking at BP stock, we can't just trade the news. The headlines have already been digested, meaning that the institutional players have already incorporated the key line items into their risk-assessment models.

To have an edge, we must think differently about the market and turn to a metric that very few (if any) consider: objective truth.

What you see in standard financial analyses — whether of the fundamental or technical variety — generally wouldn't be considered objective truth. Metrics such as share price or earnings are measurements of value. But there is no objective standard to determine what a "good price" is or what "bad earnings" means. These terms are relative assertions and if analysts are not careful, they risk propagating presuppositional fallacies.

So, what is the objective truth of BP stock? In the trailing two months, the security is printing four up weeks and six down weeks, with an overall upward trajectory across the 10-week period. For simplicity, the sequence can be abbreviated as 4-6-U.

At first, this compression of price magnitude seems incredibly stupid. But let's really think about what we're saying here. In the past 10 weeks (including the current one), the market was a net buyer of BP stock four times and a net seller six times.

We now have an objective, falsifiable categorization of BP's pricing dynamics. By conducting this conversion exercise (going back to January 2019), we can extract a demand profile of the oil giant:

Here's the fun science part. If we assume no mispricing of BP stock — the null hypothesis — then the chance that a long position will rise on any given week is only 45.03%. For whatever reason (perhaps because of the aforementioned initial green energy focus), BP ordinarily suffers a negative bias.

At this moment, though, the casino is giving us the hand of the 4-6-U sequence. If we grant the statistical viability of this sequence (more on that below), then the success rate of a one-week long position rises to 62.07%. That's obviously an advantage to the bullish speculator.

The best part? Hardly anybody thinks this way because the religion of fundamental and technical analysis is so comforting. But if you can open your eyes — if you take the red pill — there's an entire ecosystem of analytics that's waiting to be explored.

Using Hard Data To Trade

Based on past analogs and assuming that the bulls can control the market for the next two to three weeks, BP stock would be on course to reach $33.75, perhaps up to $34 given its psychological importance. With this in mind, a tempting idea is the 32.50/34.00 bull call spread expiring Aug. 15.

The above transaction involves buying the $32.50 call and simultaneously selling the $34 call, for a net debit paid of $71 (the most that can be lost in the trade). But if BP stock rises through the short strike price ($34) at expiration, the maximum reward is $79, a payout of over 111%. To note, the breakeven price is $33.21.

But how trustworthy is the aforementioned 4-6-U sequence? Running a one-tailed binomial test reveals a p-value of 0.0507, colloquially translating to a nearly 95% confidence level. If we round up from 94.93%, then yes, this is a statistically significant sequence — the signal is "intentional" rather than random.

To be clear, a high confidence level does not guarantee a successful outcome in trading. But by running real analytics, we're focusing on more repeatable, more trustworthy patterns that are less likely to degrade over time.

In an open system like the stock market? I'd call that a win.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

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