Option Investor
New Plays

New Plays

Printer friendly version

DO - $78.24 - Diamond Offshore Drilling ** Stop Loss $65 **

DO hit our $75 breakdown target on the 15th after the RIG warning. Thank you RIG. Support should be in the $70 range.

DO earnings were reported on the 9th and rose +767% to beat the street by +17 cents. Earnings for all of 2005 were $1.91 compared to a loss of -0.06 in 2004. Diamond predicted another great year in 2006.

Tuesday Feb-21st cost reduction strategy:

Sell the September $95 Call DO-IS currently $4.50
Set a stop loss on the call at DO $90
Buy back the call on a dip to $68.

Company Info:

Diamond Offshore Drilling Inc. engages principally in the contract drilling of offshore oil and gas wells. As of December 31, 2004, the Company had a fleet of 45 offshore rigs consisting of 30 semisubmersibles, 14 jack-ups and one drillship. Diamond offers a range of services worldwide in various markets, including the deep water, harsh environment, conventional semisubmersible and the jack-up market. Its principal markets for its offshore contract drilling services are the Gulf of Mexico, including the United States and offshore Mexico, Europe, principally the United Kingdom and Norway, South America, Africa and Australia/Southeast Asia. From time to time, its fleet operates in various other markets worldwide. Diamond provides offshore drilling services to a customer base that includes private and independent oil and gas companies and government-owned oil companies.

Position: 2007 $80 LEAP VCT-AP @ $10.00

Entry $75 (2/15)

RIG - $71.00 - Transocean Inc ** Stop Loss $65 **

We got our entry on Transocean the hard way. RIG gapped down to $74 from just over $78 after warning that earnings for the next two quarters would be lighter than expected. Higher maintenance costs and repairs due to the hurricanes would cost about $50 million in each of the quarters. In addition to the costs the loss of rental on the units being repaired was also a factor.

I believe RIG will rise again since they are so integral to the deep water drilling operations of many companies. They got hit and they have to pay the price to recover. The need to drill in deep water is not going away and will only intensify leading to higher rates in the future when the rigs are put back into service.

Tuesday Feb-21st insurance strategy:

Sell the March $75 Call RIG-CO currently $1.60
Set a stop loss at $74.95
Buy the May $65 Put RIG-QM currently $2.50
Set a profit stop on the put at $57
Once we get a bounce in RIG we will sell calls to
reduce the cost.

Company info:

Transocean Inc., formerly known as Sonat Offshore Drilling Inc., is an international provider of offshore contract drilling services for oil and gas wells, related equipment and work crews, primarily on a dayrate basis, to drill oil and gas wells. The Company operates with a particular focus on deepwater and harsh environment drilling services. The Company also provides additional services, including management of third-party well service activities. The Company's Transocean drilling segment consists of drillships, semisubmersibles, jackups and other drilling rigs.

Position: 2007 $80 LEAP VOI-AP @ $9.00

Entry $75.00 (2/14)

GI - $62.25 - Giant Industries ** Stop Loss $46 **

Giant declined on the same refinery downgrade that stopped us out of Holly last week. We got the $60 entry on Tuesday and GI rebounded shortly thereafter. The rebound to $63 gives us an opportunity to sell a call on this bounce to reduce our cost.

Tuesday Feb-21st cost reduction strategy:

Sell the June $75 Call GI-FN currently $3.20
Set a stop loss on the call at $73
Set a profit stop on the call at $52

Company info:

Giant Industries, Inc., through its subsidiary Giant Industries Arizona, Inc. and other subsidiaries, refines and sells petroleum products on the East Coast primarily in Virginia, Maryland, and North Carolina and in the Southwest primarily in New Mexico, Arizona, and Colorado, with a concentration in the Four Corners area where these states meet. Phoenix Fuel Co., Inc., another subsidiary, distributes commercial wholesale petroleum products primarily in Arizona. The Company has three business units: retail group, which operates service stations including convenience stores or kiosks; Phoenix Fuel, a commercial wholesale petroleum products distributor selling diesel fuel, gasoline, jet fuel, kerosene, motor oil, hydraulic oil, gear oil, cutting oil, grease and various chemicals and solvents, and refining group, which operates the Company's Ciniza and Bloomfield refineries in the Four Corners area of New Mexico and the Yorktown refinery in Virginia.

Position: Sept $65 Call GI-IM @ $8.50

Entry $60 (2/14)

HP - $64.88 - Helmerich Payne ** Stop loss $55 **

We were triggered on the HP position at $69 when RIG warned. They are in the same sector and the damage was brutal. HP has strong support at $60 that should halt the decline.

Earnings in January rose by +30% to $49 million compared to $17 million in the same quarter in 2004. It is all about day rates and HP commands some of the largest with their state of the art rigs. Unfortunately they were colored with the same brush as RIG on Monday.

Tuesday Feb-21st cost reduction strategy:
Sell the June $70 Call HP-FN currently $4.10
Set a stop loss on the call at $69.95
Set a profit stop on the call at $59

I suspect HP will decline to $60 and move sideways until RIG shakes off its weakness. After the premium declines on the short call we will buy it back for a profit.

Company info:

Helmerich & Payne, Inc. is primarily engaged in contract drilling of oil and gas wells for others. It is also engaged in the ownership, development and operation of commercial real estate. The Company is organized into two separate operating entities: contract drilling and real estate. The Company's contract drilling business is composed of three business segments: United States land drilling, United States offshore platform drilling and international drilling. The Company's United States land drilling is conducted primarily in Oklahoma, Texas, Wyoming, Colorado, and Louisiana, and offshore from platforms in the Gulf of Mexico and California. The Company also operated in seven international locations during the fiscal year ended September 30, 2005: Venezuela, Ecuador, Colombia, Argentina, Bolivia, Equatorial Guinea and Hungary. In addition, the Company is providing drilling consulting services for one customer in Russia. Its real estate investments are located in Tulsa, Oklahoma.

Position: Sept $75 Call HP-IO @ $7.20

HP Entry $69 (2/13)

NOV - $64.30 - National Oilwell Varco ** Stop Loss $53 **

Same story fourth verse. NOV fell with the sector even before the RIG warning and triggered our entry at $61.50 after the warning on the 14th. $60 is nearly -$18 off the Feb highs and should present very little risk. We will sell a short call to reduce it further.

Tuesday Feb-21st cost reduction strategy:
Sell the May $70 Call NOV-EN currently $3.60
Set a stop loss on the call at $69.95
Set a profit stop on the call at $58

Company Info:

National-Oilwell Varco Inc., formerly National-Oilwell, Inc. designs, manufactures and sells systems, components and products used in oil and gas drilling and production, as well as distributes products and provides services to the exploration and production segment of the oil and gas industry. The Company's Products and Technology segment designs and manufactures complete land drilling and workover rigs, as well as drilling-related systems on offshore rigs. Non-capital revenue sources within its Products and Technology segment include drilling motors and specialized downhole tools that are sold or rented, spare parts and service on the large installed base of its equipment, expendable parts for mud pumps and other equipment and smaller downhole, progressive cavity and transfer pumps. Company's Distribution Services segment provides maintenance, repair and operating supplies and spare parts to drill site and production locations throughout North America and to offshore contractors.

Position: Aug $65 Call NOV-HM $6.90

NOV Entry $61.50 (2/14)


Leaps Trader Play Archives