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New Plays

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UPL $41.66 Ultra Petroleum ** Stop loss $38.50 **

Ultra blasted out of the gate on Monday to trigger our entry at $40 and came very close to a new high at $42.50 on Friday after a week of stead gains. Ultra was one of the best performing energy stocks for the week with very little retracement at Friday's close. I looked at an insurance put but UPL has been doing so well I am going with a stop loss instead.

Company info:

Ultra Petroleum Corp. is an oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and gas properties. The Company's operations are focused in the Green River Basin of southwest Wyoming and Bohai Bay, offshore China. During the year ended December 31, 2004, it owns interests in approximately 166,974 gross (92,997 net) acres in Wyoming covering approximately 260 square miles. The Company owns working interests in approximately 241 gross productive wells in this area and is operator of 41.5% of the 241 gross wells. Through Pendaries Petroleum Ltd., it is active in oil and gas exploration and development in Bohai Bay, China. The Company also owns interests in 15,518 gross (14,652 net) acres in Pennsylvania, as well as interest in approximately 720 gross (320 net) acres and interests in three productive wells in Texas.

Jan 2007 $45 LEAP CALL OZH-AI @ $8.40

Alternate short-term entry:
March $45 Call UPL-CI @ $4.40

Entry $40.00(8.22)

MRO - $59.28 Marathon Oil ** Stop loss $57.50 **

Marathon also spiked out of the gate on Monday but unlike UPL drifted lower the rest of he week. It appears to have found light support at $59 with stronger support at $58. I am putting a stop just under that support at $58. No insurance put.

Company Info

Marathon Oil Corporation (Marathon) is engaged in worldwide exploration and production of crude oil and natural gas. It operates through three segments: exploration and production (E&P), which explores for and produces crude oil and natural gas; refining, marketing and transportation (RM&T), which refines, markets and transports crude oil and petroleum products, and integrated gas (IG), which markets and transports natural gas and products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol. The Company's principal operating subsidiaries are Marathon Oil Company and Marathon Ashland Petroleum LLC (MAP). During the year ended December 31, 2004, the Company's worldwide liquid hydrocarbon production averaged 170,000 barrels per day (bpd) and sales of natural gas production, including gas acquired for injection and subsequent resale, averaged 999 million cubic feet per day (mmcfd).

JAN-2008 $65 LEAP Call WXM-AN @ $6.50

Alternate short-term entry:
Jan-06 $65 Call MRO-AM @ $2.90

Entry $61 (8/22)

COP - $61.95 Conoco Phillips ** Stop loss $58.00 **

I was disappointed in the performance of COP. This is my favorite big oil stock with an aggressive reserve acquisition program. Reserves are being replaced faster than they are depleted and that gives COP a bright future. After a very nice run to $67 it fell more than -10% to just over $60 on the prior weeks selling. The rebound faltered and COP has returned to light support at $62. I am putting a wide stop on it because the Oct $60 put is still near $2. I would rather bleed premium than pay $2 for insurance right at support.

Company Info:

ConocoPhillips is an integrated energy company. The Company's business is organized into six operating segments. The Exploration and Production segment primarily explores for, produces and markets crude oil, natural gas, and natural gas liquids on a worldwide basis. The Midstream segment gathers and processes natural gas produced by ConocoPhillips and others, and fractionates and markets natural gas liquids. The Refining and Marketing segment purchases, refines, markets and transports crude oil and petroleum products. The LUKOIL Investment 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 businesses, including new technologies related to natural gas conversion into clean fuels and related products, technology solutions, power generation and emerging technologies.

JAN-2007 $65 LEAP CALL OJP-AM @ $7.50

Alternate short-term entry:
Jan-06 $65 Call COP-AM @ $4.40

Entry $63.50 (8/22)

CHK - $28.11 Chesapeake Energy ** Stop loss $25.75 **

Chesapeake has a very nice chart like UPL. All uphill and very little give back on Friday. CHK is primarily a gas company and will continue to profit from the growing demand and shortage of natural gas. It should be insulated somewhat from the price of oil as the September fluctuations appear. However, it will profit from any rise in the price. I am setting the stop under the August low in lieu of an insurance put.

I listed the trigger price wrong in last weeks update so we were not triggered. This is a new entry with prices as of Sunday.

Company Info

Chesapeake Energy Corporation is an oil and natural gas exploration and production company engaged in the acquisition, exploration and development of properties for the production of crude oil and natural gas from underground reservoirs and the marketing of natural gas and oil for other working interest owners in properties that it operates. The Company's properties are located in Oklahoma, Texas, Arkansas, Louisiana, Kansas, Montana, Colorado, North Dakota and New Mexico. The proved oil and natural gas reserves as of December 31, 2004 were approximately 4.9 trillion cubic feet of gas equivalent (tcfe). At December 31, 2004, approximately 89% of the Company's proved reserves (by volume) were natural gas, and approximately 70% of its proved oil and natural gas reserves were located in the primary operating area, the Mid-Continent region of the United States, which includes Oklahoma, western Arkansas, southwestern Kansas and the Texas Panhandle.

JAN 2007 $30 LEAP CALL VEC-AF @ 4.90

Alternate short-term entry:
Jan-06 $30 Call CHK-AE @ $2.25

Entry $28.11 (8/28)

VLO - $89.34 Valero Energy ** No stop **

Valero is my favorite refiner, the largest in the U.S. and the only one with a high capacity for sour Saudi Crude. They will constantly have margins 3-4 times other refiners who can only process light sweet crude. They took a hit this week as the end of driving season approaches and they may continue to show weakness until the next crisis appears. Fear not they will continue to blow away earnings and this will attract new buyers.

VLO appears to respect the 30-day average and that would be a good spot for a new entry if you did not buy on last weeks trigger. Also, due to the prices of the options I would recommend the shorter option rather than the LEAP. You get what you pay for but I hate to pay over $10 for a LEAP that is $10 out of the money. VLO tends to move fast and far when it moves. Therefore I am putting an insurance put on this position.

Company info:

Valero Energy Corporation (Valero) owns and operates 15 refineries having a combined throughput capacity, including crude oil and other feedstocks, of approximately 2.5 million barrels per day. Valero produces environmentally clean refined products, such as reformulated gasoline (RFG), gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur diesel fuel and oxygenates (liquid hydrocarbon compounds containing oxygen). It also produces conventional gasolines, distillates, jet fuel, asphalt and petrochemicals. Valero markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It sells refined products through a network of more than 4,700 retail and wholesale branded outlets in the United States, Canada and Aruba. Valero's retail operations include approximately 1,500 company-operated sites that sell transportation fuels and convenience store merchandise.

JAN 2007 $100 LEAP CALL VHB-AT @ $12.10

Alternate short-term entry:
Mar-06 $100 Call VLO-CT @ $6.40

Insurance put: October $80 Put VLO-VP @ $1.50

Entry $89 (8/22)

XLE - $47.97 Energy SPDR ** Stop Loss $46.50 **

The XLE traded sideways in a $1 range all week with weakness in some components offset by strength in others. When it goes directional on broad sector strength it is a steady mover with very little risk. This is the index fund for energy traders. Options are cheap and insurance is cheaper if you want it. Because of the low price of entry I am not suggesting an insurance put.

SPDR Description:

The XLE SPDR is composed of 27 energy stocks and represents about 9% of the SPX. This is the 9% that helped push the SPX to the current levels with the rise in oil over the last year. In fact the XLE has far exceeded the SPX in performance over the past year.

List of XLE components: XLE List

JAN 2007 $55 LEAP CALL OJW-AC @ $3.50

Alternate short-term entry:
Jan-06 $50 Call XBT-AX @ $2.45

Entry $49 (8/22)

MEE - $46.88 Massey Energy ** Stop Loss $44.00 **

Massey sprinted out of the gate on Monday but declined slowly the rest of the week. Massey is a favorite of Boone Pickens and one of the stocks he recommends. They have a high demand low sulphur coal with reserves of 3.2 billion tons. Since I placed this on the watch list I saw an analyst downgrade it. While I don't agree with his premise I want to be cautious and I am placing a tight stop on it. I value Boone Pickens opinion more than a part time energy analyst.

Company info:

Massey Energy Company (Massey) produces, processes and sells bituminous coal of steam and metallurgical grades of a low-sulfur content through its 22 processing and shipping centers, called resource groups, many of which receive coal from multiple coal mines. Massey operates 34 underground mines (four of which employ both room and pillar and longwall mining) and 15 surface mines (with seven highwall miners in operation) in West Virginia, Kentucky, and Virginia. Its steam coal is purchased by utilities and industrial clients as fuel for power plants. Its metallurgical coal is used to make coke for use in the manufacture of steel.

JAN 2007 $50 LEAP CALL VHK-AJ @ $9.00

Alternate short-term entry:
Jan-06 $55 Call MEE-AK @ $2.95

Entry $49 (8/22)

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