Option Investor

Weekly Newsletter, Saturday, 07/02/2005

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Table of Contents

  1. Commentary
  2. Changes in Portfolio
  3. Portfolio Listing
  4. New Plays
  5. Existing Plays
  6. Watch List

Leaps Trader Commentary

Buy the Dips

I continue to get emails from readers who are new to this newsletter or for one reason or another failed to enter the positions when initially profiled. The number one question is "should I enter them at this level?" That is followed closely by "when should I add to my positions?" and "should I take profits?"

The answers may be obvious to some who have been reading my commentary for the last eight years but not so obvious to others. I try to continue the thought process in my market wraps with a running commentary on the future of oil. I continually suggest buying the dips. Ideally we would like to see crude pullback to the 100-day average for a safer entry. That has only happened a couple times over the last year so waiting could be a lonely proposition.

This puts traders in an emotional bind. When to buy? When we are on an up-cycle everyone feels like they are buying the top. When we are on a down-cycle we are afraid to buy the dip. Nobody is immune to those feelings. Thursday night I loaded my charts and looked at crude at $56 and the 100-day at $54.50. The severity of the three-day drop was a cause for concern and I toyed with the idea of buying the dip at $56. Option premiums had deflated and an entry would have been ideal.

However, the greed factor took hold and I decided to wait for a touch of the 100-day at $54.50. I did notice a bid on the QM futures overnight and decided to buy some just in case. After all it was just one day until the weekend and my complete review of all the oil stocks on my radar screen. I knew I was not going to be available at Friday's open so I set my stop and went to bed about 1:30am. When I did get to the computer mid-morning on Friday oil was up +1.25 and volume was slowing. While I closed the QM position for a nice profit I kicked myself the rest of the day for not adding to my long-term oil positions instead. To add insult to injury the futures continued to climb to end the day up +2.25. Option premiums are inflated again and I am back in the same boat as everyone else wondering when to make my next entry.

The moral to this story should be clear. Nobody and I mean nobody, will ever know exactly when to enter or add to the oil positions profiled here. We just need to have faith and continue to buy the dips. There is safety in that faith because I have not found any credible evidence that the oil crisis is not real. As I mentioned in my weekend wrap the world consumes 30 billion barrels of oil per year and there have been no major discoveries since 1970. Every drop we use is irreplaceable. Every barrel pumped out of the ground is one barrel closer to a dry hole. Those dry holes will start to appear much faster as we begin to slide down the depletion slope.

Boone Pickens is predicting Q4 demand at 86-87 million bbls per day. Current maximum global production is only 85-85 million bbls per day. Right now we are in the lull period where demand is lighter and any meager excess production is being put into storage for use late in Q3 when demand begins to increase. We are already seeing shortages in heating oil and we are not even close to heating oil season. Once that current summer production cushion evaporates all hell is going to break loose.

We need to buy every dip between now and the end of Q3 in order to profit from the Q4 prices. I know it is easy to say and tough to do to just buy every bounce. I know I am like everyone else who thinks the bottom will fall out on the next dip and we hate to pull that entry trigger. For those who can watch the market every day it is easier to watch for a rebound forming and jump in when resistance levels fail. That would have been at $57.65 on Friday.

August Crude Oil Chart

There is no magic answer to when to buy or when to add to positions. Everyone needs to be comfortable with the premise of a pending oil crisis and the bullish future for oil prices.

Oil demand is seasonal and I plan on closing positions late this year and reentering in the spring as the drop in heating oil demand provides a breather for prices. While buying and forgetting is still an option for many I see no reason to watch profits bleed away along with the time premium. However, with 2007 generally regarded as the end point for oil production as we know it I do expect to hold any 2006 positions until they mature. Given the uncertainty of global supply and demand that peak could come in 2006 or 2008. If we knew exactly you could sell the information for billions. The only certainty we know is that it is coming and the world, as we know it will change forever. If that gives you more confidence to "buy the top" over the next several months it shouldn't. Even raging bull markets in any stock or commodity will eventually pause for profit taking. Just be patient and buy the dips. I know that is easy to say and hard to do but if it was easy the profits would be much smaller.

The only real challenges in our current portfolio are CVX and XOM. Chevron continues to hover just outside of profitable due to concern about the UCL bid. Once that hurdle is past (August 10th) I believe Chevron will be bought quickly as undervalued relative to its pears.

XOM continues to hover just underwater as funds appear to have liquidated large positions as the quarter ended. XOM has seen some heavy selling which could have come on fear they will use their $30 billion in cash to overpay for another company. Every dollar oil moves higher will eventually be translated directly into profits for XOM but I am starting to believe our money would be put to better use elsewhere. If XOM does not move higher by next weekend I will replace it. I am trying to prevent adding additional positions as I want to limit the portfolio to only 10-12 of the best available.

After last week's dip I have raised the stops on several positions to just under the new support levels.

Changes in Portfolio

New Plays


Dropped Plays


New Watch List Plays Triggered


Portfolio Listing & Top Picks

New Plays

Most Recent Plays

No new plays today.

Play Updates

Existing Plays

MRO $55.55 Marathon Oil ** No Stop **

MRO dipped to just under $53 on the end of quarter profit taking and quickly resumed its march higher on Friday. The all time high is $55.90 and we came very close to that on Friday.

On Thursday MRO completed acquisition of $3.7B in properties from Ashland Inc (ASH). Asland owned 38% in Marathon Ashland Petroleum (MAP) and two other businesses. ASH fell -$11.72 on the deal which represented the payment from MRO to Ashland and Ashland shareholders of stock and cash. Ashland applied $2.5B of the proceeds to payoff debt.

Takeover speculation:

Only one company will end up with Unocal and that leaves the other hungry and looking for other targets. XOM also has nearly $30 billion in cash and needing to make an acquisition. Marathon is one of the largest remaining independents and a likely target due to its diverse operations. MRO has several large properties in Asia and within China's sphere of influence.

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).

Current entry:

2007 $55 LEAP Call VXM-AK @ $7.90

Put insurance
Buy August $50 PUT MRO-TJ, currently 85 cents, ONLY
if MRO trades at $52.50. I do not want to buy the insurance until it is needed.

Entry $54.74 (6/27)

CHK - $24.18 Chesapeake Energy ** Stop $22.00 **

CHK broke out to a new high on Friday at $24.20 and closed only -2 cents from that high. This was a +6% move from Thursday's close. CHK is our low dollar entry into the energy market and with a new closing high it appears ready to streak higher. With natural gas prices continuing to rise it means money in the bank for CHK. Much of the electricity generated over the summer for cooling the south will be produced with CHK gas.

Company Info

Chesapeake Energy Corporation is the third largest independent producer of natural gas in the U.S. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and producing property acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas Gulf Coast and Ark-La-Tex (including the Barnett Shale) regions of the United States.

Chesapeake Energy derives 90% of its revenues from natural gas. They are very aggressive about replacing reserves and will capitalize on the continued increase in prices. Gas prices have soared in the U.S. due to the addition and conversion of electric plants to the cleaner fuel. Several times over the last winter the gas levels supplying those plants dipped to dangerous levels. The demand is increasing faster than supply and the production peak is now estimated to be 2007. Prices are going to continue higher, much higher and Chesapeake is positioned to benefit.

This summer much of northern California will get its electricity from gas due to a drought in the northwestern hydro-electric grid. Generation levels will be below normal and natural gas is the fall back fuel.

2007 $20 LEAP Call VEC-AD @ $4.00

Insurance put: July $17.50 CHK-SW @ 90 cents

Entry $19.00 (05/13)

APC - $84.75 Anadarko Petroleum ** Stop $79.00 **

APC closed only pennies away from a new high after dipping as low as $80.15 mid-week. I raised the stop to $79 based on last weeks price action. APC signed a new pipeline deal to accommodate 750 mcfpd from its Bear Head terminal currently under construction. APC announced last week it is on track to meet its annual production growth target of +5% to +9% per year through 2009. APC said it had identified 2.1 boe of additional resource potential. Half of the new resources are already on APC properties under development.

Company Info

Anadarko Petroleum Corporation's mission is to deliver a competitive and sustainable rate of return to shareholders by developing, acquiring and exploring for oil and gas resources vital to the world's health and welfare. As of year-end 2004, the company had 2.37 billion barrels of oil equivalent of proved reserves, making it one of the world's largest independent exploration and production companies. Anadarko's operational focus in North America extends from the deepwater Gulf of Mexico, up through Texas, Louisiana, the Mid-Continent, western U.S. and Canadian Rockies and onto the North Slope of Alaska. Anadarko also has significant production in Algeria, Venezuela and Qatar, and exploration or production positions in several other countries.

Anadarko has just completed a restructuring program and raised estimates on May-2nd. They expect output to rise +5% in 2005 and costs to be below industry trends. S&P is estimating $8.55 for earnings in 2005 and a price target of $85.

2007 $75 LEAP Call OCP-AO @ $10.10

Insurance Put
June $65 APC-RM @ $0.85, expired worthless

Entry $70.50 (5/04)

COP - $59.10 Conoco Phillips ** Stop $53.00 **

The COP rebound on Friday was reserved compared to some of its peers. $60 continues to be resistance and $57 support. Part of COP's relative weakness was news that it expected a -4% decline in production in Q2 but would still see a +3% gain for 2005 over 2004. This is going to be the story from many others as time passes. Oil is tougher to find, get out of the ground and distribute as environments for new discoveries prove harsher.

On Friday COP and Russia's Lukoil finalized a joint venture to develop energy fields in Artic Russia as part of a broader strategic alliance. COP has very good contacts in Russia and has been mentioned several times by Putin as a strategic partner. COP owns 12.6% of LUKOIL and has been approved to buy up to 20%.

Company Info

COP reported earnings of $4.10 that rose +80% over the year-ago period. Analysts had only expected $3.29. They said unplanned down time at refineries kept them from doing even better. They also said they were going to spend $3 billion between 2006-2010 to increase their ability to handle the cheaper sour crude.

COP has been aggressively purchasing assets around the globe and especially in Russia. Putin has said repeatedly that COP assets and agreements are not at risk and that COP is a partner with Russia in producing their oil.

2:1 Split on June 2nd gave us 2 of each.

(2) 2007 $50 LEAP Call OJP-AJ @ $7.88

Insurance put:
(2) June $50 COP-RJ @ $1.08, expired worthless

Entry (4/18 $49.00)

OXY - $79.74 Occidental Petroleum ** Stop $73.00 **

OXY rebounded from the low of the week on Thursday at $76.80 to close at $79.74 on Friday. This was nearly a +4% gain and much stronger than you would have expected by their chart. Part of the boost was provided by news that Oman had awarded OXY 45% ownership in the Mukhaizna field and cutting Shell to 17%. Shell had previously owned 34% but had a disagreement with Oman over boosting output. This is good for OXY but proves that ownership/rights to production in any OPEC nation is at the whim of the current ruler.

Company Info

OXY declared a quarterly dividend of 31 cents in early May and appointed former U.S. Secretary of Energy, Spencer Abraham, to their board. Earnings in 2004 were a record $2.6B and as the CEO pointed out on Friday it was more than a billion more than they earned in 2000. Not a bad growth record. Q1 earnings were up +74% over Q1-2004.

OXY reported earnings on April 26th of $2.16 per share compared to estimates of $1.99. OXY said it had higher than expected production, strong pricing and record chemical sales. Still it failed to produce the blowout earnings of COP due to hedging.

OXY reported an agreement with Oman to invest $2B in the Mukhaizna oil field and upgrade production from 10,000 bbls per day to 150,000 per day. I would happily invest $2B once to get $3B return per year. Good job!

OXY is the 239th largest company in the world and an oil giant.
Occidental's principal activities are to explore for, develop, produce and market crude oil and natural gas. The operations are carried out through two segments: Oil and Gas and Chemical. The Oil and Gas segment develops, explores for, produces and markets crude oil and natural gas. The Chemical segment manufactures and markets basic chemicals. The company operates primarily in the United States, Qatar, Yemen, Colombia, Oman, Pakistan, Canada, Russia, Ecuador and the United Arab Emirates.

2007 $70 LEAP Call VXY-AN @ $10.00

Insurance Put:
June $65.00 OXY-RM @ $1.40

Entry $68.00 (4/19)

XOM - $58.34 Exxon Mobil ** No Stop **

XOM continues to be the worst performing stock in the oil sector and barely managed a gain on Friday. With 23 billion bbls and $30 billion in cash you would expect more movement. However with six billion shares it takes a lot to generate movement.

If we see no movement by next week with oil prices higher I am going to replace it with another company.

Company Info

XOM reported a +44% jump in earnings but missed analyst estimates. After items XOM earned $1.15 and analysts were expecting $1.20. XOM hedged to capture high oil prices and prices continued to move higher. They also saw a drop in production as mature fields continued to decline. XOM said it will spend $15-$16 billion in capex in 2005 in an effort to discover/produce more oil. They also said they were going to buy back $3.5 billion in stock in the current quarter. Their record profits of $7.86 billion for the quarter give them plenty of cash for anything they desire. Maybe a couple acquisitions would help that sagging production.

XOM has larger reserves and more cash than any other oil company. They have to find something to do with their $30 billion and it will either be returned to the shareholders or used to buy more reserves.

XOM is the largest oil company in the world and while it has the largest reserves it also has the highest overhead cost.

2007 $60 LEAP Call ODU-AL @ $6.70

Insurance Put:
July $55 Put XOM-SK @ $1.20

Entry $58.00 (4/19)

XLE - $45.45 Energy SPDR ** Stop $42.50 **

The XLE is struggling to move higher and is being held back by its two major components. XOM is 20% of the index and CVX 13%. With XOM sliding lower on profit taking by funds and fear of a higher bid by Chevron on Unocal the XLE is barely managing to hold over $45. Eventually this will change but it may not be until after the August 10th vote by Unocal shareholders.

Company Info

The XLE SPDR is composed of 27 energy stocks and represents about 8% of the SPX. This is the 8% 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.

I chose a leap close to the money because there was no material price difference for the Leaps $2-3 away. Insurance is cheap and I expect this to be a very long-term play.

2007 $40 LEAP Call ORJ-AN @ $5.60

Insurance put:
Buy June $39 Put XLE-RM @ $1.35, expired worthless

Entry $39.75 (4/18)

VLO - $81.28 Valero Energy ** Stop $73.00 **

VLO continues to hold the high ground after touching its prior high on Monday at just over $82.

Valero announced on Thursday it was going to retire the Diamond Shamrock brand and put up Valero signs at its 2,900 Shamrock stations. This will give the Valero brand and image a huge boost since few if any consumers know Valero owned the chain. Valero has gone from a single refinery with 170,000 bbls of output to 14 refineries and 2.5 mbpd of output and 4,700 retail stores over just a few short years. It will become the largest refiner in the nation when it completes its acquisition of Premcor later this year.

VLO remains in the best position to profit given their ability to refine the heavy sour crude currently available in the market. As prices rise on distillates VLO will continue to gain margin against other refiners.

Company Info

VLO has been weak since the announcement it was buying Premcor. This should be a very good deal for them and the combined companies will control a large portion of the refinery business. Think of it as a buying opportunity.

Valero is the largest independent refiner in the U.S. and one that has made the switch to the higher profit margins of sour crude. Oil prices are generally quoted using the West Texas Light Sweet price. The sour crude sells for significantly less and will become the dominant variety as oil supplies dwindle. Sour crude has been running about $10 a bbl under sweet crude. Valero is seeing even bigger discounts from less desirable grades from Mexico and Alaska. It costs more to process the sour crude and fewer refineries can handle it. This forces the price of that sour crude lower. Finished gasoline is priced basically on the price of a barrel of sweet crude. This means the same gas Valero produces from cheaper sour crude sells for the same price as the gas produced from sweet crude. This enables Valero to capture a significant profit margin. They had a record year in 2004 due in part to their ability to process the cheaper grade of oil. The company has already said 2005 profits will be higher in 2005 even if margins narrow for others.

Company website: http://www.valero.com/About+Valero/

Valero reported earnings on April 21st of $1.92 that more than doubled the prior year of $.91 cents. VLO fell slightly in trading because analysts had estimates of $1.97. Shucks, they missed estimates by a nickel but more than doubled last year. Let's sell them. Duh! They rebounded as eager traders rushed into the gap and they closed at $74.86 on Friday, more than $5 above the earnings dip at $69.55.

2007 $75 LEAP Call VHB-AO @ $14.10

Insurance put:
June $60.00 VLO-RL @ $2.05, expired worthless

Entry $68.00 (4/15)

CVX - $57.00 Chevron Texaco ** No stop **

CVX recovered slightly on Friday after the House voted 333 to 92 to prohibit the sale of Unocal to CNOOC. This is not a binding vote as it only accomplished adding an amendment to a spending bill but it does hurt the chances of CNOOC for getting the deal done. Traders are afraid Chevron will be forced to bid higher and that is causing weakness in the stock.

Chevron could easily bid higher given the paltry $11 per bbl of proven reserves. It is only good business to wait until it feels prudent to do so. I am betting Chevron will sweeten its offer just before the Unocal vote on August 10th. This will hinder CNOOC from raising its bid quickly enough to matter.

Company Info

Chevron spiked to $54.50 on May 6th on news of an oil find in Utah by Wolverine where Chevron has extensive leases. It was also announced that Chevron had won a portion of the 15 blocs up for bid in Libya.

Chevron posted earnings that disappointed the street due to several unplanned outages at various refineries. CVX saw refining profits fall -36% but the condition is expected to be temporary. The stock is also weak due to uncertainties about the Unocal acquisition.

Chevron announced in early April that it was purchasing Unocal for $18 billion in cash and stock and both CVX and UCL dropped sharply. This was not a surprise for Chevron to make the purchase but the timing caught everyone off guard.

In theory everyone was waiting for oil to drop in Q2 and allow the next round of acquisitions to be made at a more reasonable value. Instead Chevron did a take under on Unocal by offering less than the current share price. It is a good deal if you can pull it off.

Chevron beat out several other firms including China's CNOOC who had been a hot pursuer but had to drop out at the last minute after it could not complete the final terms in time. CNOOC has since offered $67 a share for Unocal but the deal is expected to fail due to a lack of approvals.

Chevron will likely sell off about $3 billion in non-core assets once the deal is consummated. The main asset Chevron wanted was the 1.7 billion barrels of proven reserves and tens of thousands of acres of additional leases still to be explored. Chevrons current average cost of produced crude is $27. After selling the non-core assets they will end up with the Unocal proven reserves at about $9 a bbl plus billions in other assets like gas fields, power plants and joint ventures around the world. This was a very sweet deal for Chevron.

It may take some time for the cloud to lift from the stock price but the next jump in oil prices should do wonders. Chevron dropped back to its 100-day average at $55.50 on the news and this should be very strong support. There is not expected to be any hurdles to getting the deal approved as most of the assets are either out of the country or will be divested as part of the deal.

The Unocal leap was actually triggered when the price hit $59 on the announcement. With UCL trading at $58.74 at Friday's close there would not have been any material movement. Because any Unocal leap will eventually end up being a Chevron leap I am electing to use the previously recommended Chevron leap as the actual position. I am using Friday's close for the entry price.

2007 $60.00 LEAP Call VCH-AL @ $5.60
2007 $57.50 LEAP Call VCH-AY @ $6.70
UCL 2007 $60 LEAP Call VCL-AL @$6.60

We held both CVX and UCL leaps when the buyout was announced. I dropped the UCL listing as a duplicate to focus on the eventual merged company. Anybody holding the UCL leaps at the time should still be in them and ready to benefit from a higher UCL bid by CNOOC.

Insurance Put:
June $55 Put CVX-RK @ $1.65, expired worthless

New Put 6/19
Sept $55 Put CVX-UK @ 0.95

Entry $56.67 (04/07)


Leaps Trader Watch List

As each day progresses I never cease to be amazed at the number of oil stocks available to trade. After putting together the Oil Crisis report last December covering 350 energy companies I have since found dozens more. Many are only a footnote to the real action but there are new opportunities almost every week. A trader could go crazy trying to analyze and follow each one. While I see them fly by I still feel the best chance for profit comes from those with either large reserves or a niche in the market place. For example VLO is one of those niche players. I came close to playing Diamond Offshore last week but options were simply too expensive. Not every player is a play.

This week I am removing Grey Wolf for no movement. It's rise to stardom from May to June appears to have left it breathless.

BP came within 25 cents of an entry at our $62 trigger and while I can't officially add it to the portfolio as triggered I hope some of our readers felt it close enough to play.

Encana came within 42 cents of our breakdown entry and the same rules apply as those I mentioned for BP. I am leaving both on the watch list for future entries.

One of my major frustrations for this week was AHC, Amerada Hess. It failed to really drop on Wed/Thr and I had it pegged for inclusion this week. On Friday it jumped +4.34 and took itself out of contention this time around. Option premiums skyrocketed on the gain.

Sunoco (SUN) was another target and it also jumped +4.19 on Friday. There was a rumor that SUN was a takeover target and that helped fuel the gains.

I mentioned Talisman Energy several weeks ago (no leaps) and it is on the verge of a potentially strong breakout over $40.

UPL, EOG, RRC and KWK were mentioned in one research report last week as strong plays in unconventional gas exploration and development. All broke out to new highs on Friday. Of the four only EOG and UPL have leaps. UPL was cheaper but the slower mover of the two. I added EOG to the watch list for this week.

Dropped Entries
GW $7.42 Grey Wolf No movement

New Watch List Entries
EOG Resources

Current Watch List

EOG - $58.50 EOG Resources

** Breakdown Target $57.50 **
** Breakout Target $59.00 **

EOG is engaged in the exploration, development, production, and marketing of natural gas and crude oil, primarily in major producing basins in the U.S., as well as in Canada, Trinidad, & the U.K.

Joe Allman, natural gas analyst at RBC Capital Markets said EOG and companies like them generate a 30% to 50% rate of return on assets. Sometimes even 100% on certain projects. EOG grew +30% in 2004.

Breakdown Target
BUY 2007 $60.00 LEAP Call OAC-AL currently $9.20

Breakout Target (same)
BUY 2007 $60.00 LEAP Call OAC-AL currently $9.20


BP - $63.29 BP, PLC

** Breakdown Target $62.00 **

BP p.l.c. produces & markets crude oil & petroleum products worldwide. It is involved in exploration and field development throughout the world and is engaged in the manufacture and sale of petroleum-based chemical products. For the 3 months ended 3/31/05, revenues rose 15% to $81.01B. Net income rose 34% to $6.60B. Results reflect increased sales from all the business segments, higher marketing & refining margins and inventory gains

Breakdown Target
BUY 2007 $65 LEAP CALL WAO-AM currently $7.80


ECA $41.20 Encana Corp

** Breakout target $42.00 **
** Breakdown target $39.50 **

ECA owns the largest independent gas storage network but that is not the primary focus of its business. ECA has been divesting itself of non-core assets in an effort to focus on its main business. It will divest itself of the gas network either through a competitive bid or IPO by early 2006. This represents a major cash generation point for ECA and they will use the cash to acquire more reserves. This is the kind of story we want in our LEAPS portfolio. Unfortunately ECA does not have leaps and we will have to use the Jan-06 calls. That should get us through the Fall demand cycle and allow us to take profits ahead of the spring dip.

Company info:

With an enterprise value of approximately US$44 billion, EnCana is one of North America's leading natural gas producers, is among the largest holders of gas and oil resource lands onshore North America and is a technical and cost leader in the in-situ recovery of oilsands bitumen. EnCana delivers predictable, reliable, profitable growth from its portfolio of long-life resource plays situated in Canada and the United States. Contained in unconventional reservoirs, resource plays are large contiguous accumulations of hydrocarbons, located in thick or areally extensive deposits, that typically have low geological and commercial development risk, low average decline rates and very long producing lives. The application of technology to unlock the huge resource potential of these plays typically results in continuous increases in production and reserves and decreases in costs over multiple decades of resource play life. (source Encana)

Encana does not have leaps so we are going to use the January-06 calls. The demand cycle runs through November giving us plenty of time to rotate out and reenter on the spring demand dip.

Breakout Target
BUY Jan 2006 $45 CALL ECA-AI currently $2.50

Breakdown Target
BUY Jan 2006 $40 CALL ECA-AH currently $4.60


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