Option Investor
New Plays
Printer friendly version

CVX - $61.71 Chevron Texaco ** Stop Loss $58 **

Chevron Texaco and its various divisions are engaged in petroleum, chemical and coal mining operations. Revenue rose +28% in 2004 to $155 billion with net earnings rising +73% to $13 billion. CVX pays an annual dividend of $1.60 or 2.62%. They currently have about $7 billion cash on hand and could easily finance any acquisition they desired. According to Multex their PE as of Friday's close was 9.99, which was -20% lower than the same time last year. It is lower because earnings are accelerating faster than price.

Chevron is being rumored as a buyer for Unocal but the prospect of a bidding war with China or other major oil companies has pressured the stock for the last week. Regardless of the price paid the oil in the ground is sure to double in value before they can produce it. This is why there is likely to be a bidding war.

Proven reserves are far easier to produce quickly than suspected deposits that require years of drilling experimental wells in sometimes harsh environments. Unocal has extensive holdings in Indonesia and in the Gulf of Mexico. Not exactly prime locations but far easier to develop than the Falklands or the North Sea.

The options are extremely cheap relative to the potential thanks to the worry over the potential Unocal bid. Also, the $62 level is resistance dating back a year. I hesitate to buy resistance but the insurance put is cheap.

Buy 2006 $65 LEAP Call WCH-AM currently $3.40
Buy 2007 $65 LEAP Call VCH-AM currently $5.70 A real bargain!

Insurance Put
Buy April $60 Put CVX-PL currently $1.10

Place a stop on the calls at $58.00
Place a stop on the put at $56.

Entry $61.71 (03/07)


Leaps Trader Play Archives