ConocoPhillips (NYSE:COP) is an integrated energy company organized into six operating segments. The Exploration and Production segment primarily explores for, produces and sells crude oil, natural gas, and natural gas liquids. The Midstream segment gathers, processes and markets natural gas liquids. The Refining and Marketing segment purchases, refines, markets and transports crude oil and petroleum products. The LUKOIL segment consists of the company's equity investment in LUKOIL, an international, integrated oil and gas company. The Chemicals segment manufactures and markets petrochemicals and plastics on a worldwide basis. The Emerging Businesses segment encompasses the development of new products, including leading edge technologies related to natural gas conversion, power generation and other emerging energy sciences.
Shares of the major oil producing firms have slumped in recent weeks in conjunction with crude prices, which have retreated far below their 2005 highs amid swelling U.S. inventories. The consolidation is not surprising, given the current lofty levels of many oil-related stocks and Friday's comments from Fed Chairman Greenspan - who said high energy prices helped cool off demand growth - suggest the trend will continue in the near-term. The technical indications point to lateral price activity for COP in the coming weeks and traders who agree with that assessment should consider this position.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bearish/credit spread):
BUY CALL JUN-115.00 COP-FC OI=2494 ASK=$0.25
SELL CALL JUN-110.00 COP-FB OI=2060 BID=$0.65
INITIAL "NET-CREDIT" TARGET = $0.45-$0.55
POTENTIAL PROFIT (X 5 contracts @ $0.45) = $225
MARGIN REQUIREMENT (X 5 contracts) = $2275
RETURN ON INVESTMENT (max) = 9.8%
COST BASIS = $110.45
INITIAL EXIT STRATEGY:
A "net-debit" order of $0.90-$1.00 to exit the entire spread may be appropriate for some portfolios, but we intend to transition to a horizontal (calendar/time) spread if the issue moves back into the intermediate-term lateral pattern near $108. Readers who want to pursue this strategy should enter a contingent "stop-market" order to purchase five (5) contracts of the AUG-$110 call options (COP-HB) if the stock trades above $109.25 on an intraday basis. If this event occurs, a "trade alert" will also be published in the MCM Portfolio Blog, however a mechanical order will be much more effective (timely) in transitioning to the new position. Future adjustments to this strategy will be posted in the MCM Newsletter.