BTU - $81.88 - Peabody Energy ** Stop Loss $78.00 **
Peabody has been a favorite play as the costs of energy climbs. Unfortunately it has become almost too volatile to play unless you buy a strong dip. The -$6 drop this week qualifies with a move back to uptrend support. Most of the drop came on expiration Friday suggesting it was purely options related. I am betting on it.
I can't justify an insurance put today because put options are inflated by the drop and by the roll over pressure. I am putting a tight stop on it and we will add a put next Sunday hopefully cheaper and from a higher level. If you are concerned about a loss of premium you could sell the March $95 call against the position. This would defray your cost in the position by $2.50 but also limit your upside. Any way we play this today there is about a $2 risk.
Peabody Energy Corporation (Peabody) is a private-sector coal company in the world. During the year ended December 31, 2004, the Company sold 227.2 million tons of coal. It sells coal to over 300 electricity generating and industrial plants in 16 countries. The Company owns, through its subsidiaries, majority interests in 32 coal operations located throughout all the United States coal producing regions and in Australia. Most of the production in the western United States is low-sulfur coal from the Powder River Basin. In the West, it owns and operates mines in Arizona, Colorado, New Mexico and Wyoming. In the East, it owns and operates mines in Illinois, Indiana, Kentucky and West Virginia. The Company owns four mines in Queensland, Australia. Most of the Australian production is low-sulfur, metallurgical coal. In addition to the mining operations, the Company markets, brokers and trades coal.
Buy March $85 Call BTU-CQ Currently $5.80
Insurance Put: None, tight stop until next week.
Insurance Call: None
Entry $81.88 (12/19)
PBR - $69.17 - Petroleo Brasilero ** Stop loss $65 **
Petrobras declined to our trigger point at $70 on Thursday and only gave up another buck on Friday. Most of the drop was attributed more to a smaller than expected rate cut in Brazil than to oil weakness. Brazil's central bank cut rates by a half point to 18% on Wednesday. This was the fourth cut and investors were hoping for a bigger cut to jumpstart the economy. With 18% interest I can see were only 1/2 point would be a big disappointment.
Options are so cheap on Petrobras it does not make sense to utilize any insurance this week. If we do get a rebound the $65 put should decline as roll over premium bleeds off. This would allow us to add insurance next week.
Petroleo Brasileiro S.A. - Petrobras (Petrobras) is a wholly owned government enterprise responsible for all hydrocarbon activities in Brazil. The Company also has oil and gas operations in international locations, with the significant international operations being in Latin American countries. Petrobras is engaged in a range of oil and gas activities, which include segments like exploration and production; refining, transportation and marketing; distribution; natural gas and power; international, and corporate. During the year ended December 31, 2004, the Company had estimated proved developed and undeveloped crude oil and natural gas reserves of approximately 11.82 billion barrels of oil equivalent in Brazil and other countries.
April $75 Call PBR-DO @ $3.50
Insurance Put: None
Insurance Call: None
Entry $70.00 (12/15)
TIE $65.10 - Titanium Metals ** Stop Loss $60 **
Let's try this again. TIE found a bottom around $62.50 and traded sideways all week after a free fall open on Monday. Insurance puts are still too expensive until after expiration settlement on Monday. By Tuesday afternoon we should be able to enter the January $60 for about $2 but that may be wishful thinking.
TIE moves very quickly and I am not very comfortable suggesting running naked on this play. You could use the Jan-$60 put but only if TIE trades at $61.50. It would probably cost you $2.50 on Tuesday but may not be the best defense.
If you chart the $75 call option TIE-CO it traded for $5.00 both times TIE declined to $61.50. That would only be an 80-cent loss from where it is this weekend.
Given the choices I would elect to go naked to $61.50 and take an early stop instead if we get another dip.
TIMET is the world's largest supplier of high quality titanium metal products. With its unique combination of strength, light weight, corrosion resistance and other metallurgical properties, titanium is used in hundreds of diverse aerospace, industrial and emerging applications where no other metal is as reliable or economical, especially on a lifecycle costing basis.
As a fully-integrated titanium manufacturer and distributor, TIMET's activities span every phase of titanium research, manufacturing and sales. We convert rutile ore into sponge; melt and refine ingot and slab; manufacture mill products; and distribute our products globally. We have the financial strength, capacity and technical solutions to meet the established demands for titanium and, as new uses for titanium accelerate, to lead the industry into the future.
Titanium Metals Corporation (TIMET) is a producer of titanium sponge, melted products and a variety of mill products for aerospace, industrial and other applications. For the commercial aerospace industry, the Company supplies titanium products to manufacturers of commercial airframes. Outside of aerospace markets, the Company manufactures a range of products for customers in the chemical process, oil and gas, consumer, sporting goods, automotive, power generation and armor/armament industries. Approximately 17% of the Company's sales revenue, during the year ended December 31, 2004, was generated by sales into industrial and emerging markets. TIMET markets and sells its products in the United States, the United Kingdom, France and Italy.
Buy March $75 Call TIE-CO Currently $5.80
Optional Insurance: January $60 Put TIE-ML
I prefer an early stop instead at $61.50. The official stop is $60 to allow support at $61.50 to work. If you are planning on using the put I would try to buy it around $2.00. Once bought I would move the stop to $55.
Entry $64.95 (12/19)