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Weekly Newsletter, Saturday, 04/22/2006

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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

Time For Some Profit Taking, Part Two?

The profit taking I expected last week failed to appear and oil prices hit a new record at $75 on Friday afternoon. I warned last week that the June contract appeared ready to breakout and was showing much more conviction than the expiring May version. Neither showed the slightest bit of weakness until Wednesday and it was only temporary.

The conversion from May to June occurred on Friday and traders moving from May sent June to the moon. Option expiration also exerted an upward bias and the $75 target was clearly in the cross hairs. One trader in the pit said after the close on Friday that traders were dumbfounded. He said sell orders were nonexistent and only after $75 was touched did the momentum ease. When asked about the new target for oil in 2006 he calmly said $100 much to the dismay of the interviewer. He also felt we should see a pullback but only a brief dip and then a retest of $75. If $75 is broken again on volume then the sky is the limit. He said shorts were feeling the pain but felt $75 was the line in the sand that would not be crossed. Once crossed on volume massive short covering would appear. The strangest fact of this entire scenario is that oil inventories in the US are at eight-year highs. Something has got to break soon.

Oil and gasoline inventories this week will be critical. Should we see another major decline in gasoline levels like the -5.4 million barrel drop we saw last week all hell will break lose. However, a positive build should knock the props out from under oil prices.

The Baker Hughes rig count for the week fell -19 rigs to 1591 of which 1331 are drilling for natural gas. Only 259 are hunting for oil. The demand for gas is growing rapidly and the payback on a gas well is much faster. Gas wells typically have a 3-5 year life. The gas injection season for the winter of 2006 officially started last week. I know it sounds strange with snow still falling in some parts of the US but that is the way the calendar stacks up. The season began with the highest levels of gas in storage in 15 years. +47 BCF of gas was added to storage last week bringing the level to 1,761 bcf and +63.7% above the five year average. Considering the current glut of gas it is amazing that prices shot up to more than $8.20 last week, $11.77 for the December contract. Gas producers must be out of their minds with joy given the large numbers. Chesapeake, Encana, Chevron, Conoco, EOG and Ultra Petroleum have got to be selling into those winter numbers on a daily basis. Profits are going to be huge unless they wee already hedged against a fall earlier in the year.

With Chinese President Hu Jintao in the US this week the focus was on growth in China and growth in oil demand. China consumes 6.6 mbpd of which 2.9 mbpd are imported. China has 18.3 billion bbls of proven reserves and an estimated 35 billion bbls of undiscovered or unproven reserves. That is obviously a highly doubtful number. In 1996 China consumed 3.4 mbpd or roughly half of today's consumption. In 1996 China only imported 400,000 bpd compared to the 2.9 mbpd they import now. This was a +625% increase over the last ten years. They doubled in only the last four years. With China's current growth rate at over +10% the Chinese government officially expects total oil demand to grow by +4% per year through 2020. I said "officially." It is obvious to anyone looking at the numbers that only 4% would be anemic. China has 1.3 billion people but only 26 million cars. That is less than the total cars in California. (28,146,424 as of 2000) They also have less than 5500 miles of highway compared to 168,075 miles in California. 17 years ago China had NO highways. China is rapidly constructing 55,000 miles of interstate type highways linking all the major provinces by 2012 as well as thousands of miles of infrastructure roads. By 2020 they expect to double the total mileage of available highways. As these roads are completed auto use will accelerate as will auto ownership and gasoline consumption. China saw sales of five million autos in 2004 and an estimated six million in 2005. It would have been more but China halted the +75% per year jump in auto sales they had in 2003 by putting strict rules in place on financing and ownership. Still auto sales are expected to grow by +15% a year or more for the next decade. Only 8 of every 1000 people own a car. It will not be long before the lure of a "dream machine" pushes that ownership number much higher despite the restrictions. 1.3 billion people are yearning for a better life and we in America know how cars provide that dream.

I get a kick out of people who claim oil usage will not increase. With approximately 35 million cars and trucks produced annually around the world it is impossible for demand to slow. Once China and India really catch the automotive fire that number could jump to 50 million. The only thing that will slow automotive growth is the lack of oil and that is coming at us very fast.

The Secretary General of OPEC said on Thursday there was little they could do to dampen high oil prices. He finally admitted what we have known for years. OPEC cannot pump any more light sweet crude. In fact their production volumes have fallen due to the problems in Nigeria. They have plenty of sour crude with about 1.5 mbpd of excess production but not enough light crude to satisfy demand. The Iranian Oil Minister Kazem Vaziri Hamaneh said OPEC is pumping crude at their limits but demand was outstripping supply. Both of these comments were very out of context with the party line and showed their frustration with the current state of the oil sector. OPEC is meeting in Qatar this weekend but will not be discussing quotas. There is no need since they can't produce any more than they are currently producing and they are swimming in petrodollars despite full production.

Earnings are beginning to appear and so far they have been in blowout proportions. Peabody Energy beat estimates Monday and soared +13 before Friday's close. Arch Coal jumped nearly $10 on the BTU results but then another $10 on Friday after they released their guidance. Coal is the new black gold and there seems to be no end in sight.

After the jump in crude prices on Tuesday I sent out an update suggesting some new covered calls on the assumption that a pause was just ahead. Obviously that did not happen with the contract switch and option expiration keeping the pressure on prices. On Friday during the day I sent out another update when oil hit $75 and recommended some short term puts on the IYE, the Dow Jones Energy iShare. Those puts were not an official portfolio position but simply a hedge against a possible drop. I will not be adding them to the portfolio. I firmly believe we will see some profit taking but I believe the dip should be bought. However, we need to be careful about buying a dip once gasoline inventories begin to build. That could be dangerous. We are still not in the official driving season so a buildup should occur before the Memorial Day kickoff. Once that buildup begins it could get ugly fast. We have so much profit built up in many positions that I am going to raise some stops to take us out once a major dip occurs. We will look to reenter those positions using longer-term options.

Entry points

I received numerous emails over the last couple of weeks asking how to enter the plays if they missed it the first time around. New readers or readers that were invested elsewhere when the first recommendation was made are always asking how to enter. This is the $64 question!

Oil prices tend to cycle about once a week when they are trending. This gives us a one to two day window each week where the individual stocks retreat on a dip in oil prices. If the stock you are targeting has not run away from the initial entry point then this weekly dip should provide a decent entry. If the stock is like BTU or VLO then you may need to wait for the real dip that occurs once or twice a month. Things like contract changes, option expiration, end of month rebalancing or just simple profit taking will eventually knock the entire sector back to real support. This normally happens at least once a month.

When I want to leg into a position I will watch for trending support levels on the chart and try to target an entry about a buck above support. Using Valero as an example this weekend I would really like to buy a dip to the 100-day average on a daily chart. However, I have exactly two chances of that happening, slim and none. VLO has used the 100-day average as support for more than a year with only one real penetration back in February. The problem is the current spike. With the average at $56 and the price at $69 I would be crazy to wait for a hit. Instead I dial down the time frame on the chart to 30 min periods and watch for a touch of that same 100-period average.

VLO Chart - Daily

VLO Chart - 30 min

This 30/100 method works best with trending stocks like VLO or COP. For a stock that is not trending you need to experiment with the averages to see what works for that particular stock. Always start with the daily chart and the 100-day average. Then dial down the interval until you find where that average best reflects support. For instance the 200-day on the daily CHK chart is a perfect example of a support level. Others would be COP 100/30, CCJ 100/daily, BTU 100/daily but don't expect to see that any time soon. CSX 100/30, DO 50/daily, FTO 50/daily, GI 100/daily but that could be a long wait. That is a good example of dropping to the 100/30 for a quicker entry. HAL is picture perfect on both the 100/daily and 100/30. It just depends on how much patience you have.

To make this process easier I have one chart on my QCharts setup with all the moving averages I use. (30/50/100/200) One of those usually works on the daily. If not then I look at a duplicate of that chart only in a 30 min interval. It is usually very easy to see immediately where I want to place my entry. Getting the stock to cooperate is another matter. Because every stock is controlled by different elements they don't all move exactly the same way on the same day. Every night I produce a list of ten stocks I would like to buy the next day. Normally it is the same list with only a couple of changes as positions are entered. I choose the entry point I would like for each and what month/strike I will use. If I am going to be away from the computer I program my trading screen to enter the position on a touch of my target. If I am going to be trading that day I keep a watch list of the targets open and make that "emotional" decision to enter as events change.

For instance targets for Monday might include TIE @ $58, COP @ $69, TSO @ $72.50, SU @ $85, GI @ $72, CNX @ $81, VLO @ $66.50, MRO @ $82, HOC @ $80.50, UPL @ $64.50, HAL @ $80.00, PTR @ $113.50, CSX @ $67.00, XLE @ $57.50. One word of advice. The fewer targets you watch the better your entries will be. Trying to watch too many things produces confusion and causes emotional decisions.

You can never guarantee an entry because we don't have control of outside events. This is why emotion is your enemy. Traders lose more money because they refuse to wait for the entry and just jump in because they are afraid they will miss the move. Take your time and wait for the right conditions. Once you master that feat you will master trading for a living. You will miss a few moves but odds are good you will miss a few bad ones as well.

This should be an exciting week and hopefully one that continues to be profitable.


Oil Service Index - Daily

June Crude Oil futures Chart - Daily

December Crude Oil Futures Chart - Daily

May Natural Gas Futures Chart - Daily

December Natural Gas Futures Chart - Daily

 


Changes in Portfolio

New Plays

None


Dropped Plays

None


New Watch List Plays Triggered

None


Portfolio Listing & Top Picks


New Plays

Most Recent Plays

None today.
 


Play Updates

Existing Plays

FTO - $62.44 - Frontier Oil Corp

FTO rallied over $5 for the week and almost completely erased all the losses from the multiple downgrades in early April. They also announced their earnings date for early May.

FTO was one of the candidates for a cost reduction play on Tuesday with a recommendation to sell the May $65 call @ $2.15. FTO did decline on Wed/Thr but rallied back on Friday.

Maintain a stop loss at $64.95 on the short call.
Target $60 as a profit exit on that call.

FTO is a strong takeover candidate and should be very profitable since they can refine the cheaper heavy crude.

Earnings schedule: May 8th.

Company Info:

Frontier Oil Corporation (Frontier) is an independent energy company engaged in crude oil refining and wholesale marketing of refined petroleum products. The Company operates refineries (the Refineries) located in Cheyenne, Wyoming, and El Dorado, Kansas, with a total annual average crude oil capacity of 162,000 barrels per day (bpd). Both of the Refineries are complex refineries, capable of processing heavier, less expensive types of crude oil, while producing gasoline, diesel fuel and other high-margin refined products. Frontier purchases crude oil to be refined and markets refined petroleum products, including various grades of gasoline, diesel, jet fuel, asphalt and other by-products. The Company focuses its marketing efforts in the Rocky Mountain region, which includes the states of Colorado, Wyoming, Montana and Utah, and in the Plains States region, which includes the states of Kansas, Oklahoma, Nebraska, Iowa, Missouri, North Dakota and South Dakota.

Breakdown trigger $56.00 hit (4/11)

Position: Oct $60 Call FTO-JL @ $6.50

Cost reduction play April 18th
Sell May $65 Call FTO-EM @ $2.15
Stop loss $64.95
Profit stop $60.00

Entry $56.00 (4/11)

CSX - $68.08 - CSX Corp

CSX blew past estimates of 89 cents to post earnings of $1.06 and explode for a +$6 gain on Tuesday morning. It failed to hold those levels and sank back to support at $68 by Friday. I tried to find something to sell as a covered call on Tuesday night but the options had no premium. I believe CSX will hold its gains and begin a new uptrend soon based on its stellar guidance.

CSX operates the largest railroad in the eastern US and Bear Stearns thought increased operating efficiency and higher volumes of coal would raise earnings dramatically. Looks like they were right.

Earnings: April 18th $1.06 vs estimates of 89 cents

Company Info:

CSX Corporation (CSX) based in Jacksonville, Florida, owns companies providing rail, intermodal and rail-to-truck transload services that combine to form transportation companies, connecting more than 70 ocean, river and lake ports. CSX's principal operating company, CSX Transportation Inc. (CSXT), operates the railroad in the eastern United States with approximately 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (Intermodal) is a coast-to-coast intermodal transportation provider, an integrated intermodal company serving customers from origin to destination with its own truck and terminal operations, plus a dedicated domestic container fleet. Containers and trailers are loaded and unloaded from trains, with trucks providing the link between intermodal terminals and the customer.

Breakout trigger $60.50 hit Apr-3rd
Position 2008 $65 LEAP Call YYD-AM @ $8.30

Entry $60.50 (4/03)

PBR - $99.44 - Petro Brasileiro ** No Stop **

Unbelievable! PBR soared +11 for the week and closed just under $100 on Friday. PBR announced the operation of a new rig (P-50) off Brazil's coast that will push Brazil's production higher than its consumption for the first time ever. PBR announced a new discovery in the Garoupa field that contained up to 180 mb of oil.

I recommended a covered call on Tuesday with PBR at $96 using the May $100 Call. The announcement of the new discovery on Thursday sent PBR up again to a new high.

Maintain a stop loss at $101 on the short call.
Maintain a profit stop at $95 on the short call.

Earnings schedule: May 12th.

Company Info:

Petroleo Brasileiro S.A. - Petrobras (Petrobras) is a mixed-capital enterprise of which a majority of voting capital is owned by the Brazilian Government. The Company is engaged in a range of oil and gas activities, which include segments such as exploration and production, refining, transportation and marketing, distribution, natural gas and power, international, and corporate. Besides the dominant market position in Brazil, Petrobras has oil and gas activities in international locations, with significant international operations in Latin America, the Gulf of Mexico and West of Africa. 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.

Position: 2007 $95 LEAP Call VDW-AS @ 8.40

Cost reduction play Apr-18th
Sell May $100 Call PBR-ET currently $2.05
Stop loss $$101.00 (in the money)
Profit stop $95

Entry $87.00 (3/07)

SLB - $68.50 - Schlumberger Ltd. ** No Stop **

SLB was another star performer with a continued run to a new high at $69.40 after posting strong earnings on Friday. SLB posted earnings of 59 cents compared to analyst estimates of 55 cents. SLB also announced it was buying the 30% of WesternGeco from Baker Hughes that it did not own. This gives SLB 100% ownership in the seismic firm. The price was $2.4 billion in cash. SLB also announced a share buyback of 40 million shares, roughly 4% of the outstanding shares, to be conducted over the next four years.

Because earnings are past and the announcement of the purchase of WesternGeco I am recommending a cost reduction play for Monday.

Sell Aug $75 Call SLB-HO currently $2.95
Set a profit stop at $64
Set a stop loss at $72

Earnings: April 21st, 59 cents vs estimates of 55 cents

Company Info:

Schlumberger Limited (Schlumberger) is an oilfield services company that supplies technology, project management and information solutions for the oil and gas industry. Schlumberger consists of two business segments: Schlumberger Oilfield Services and WesternGeco. Schlumberger Oilfield Services is an oilfield services company that supplies a range of technology services and solutions to the international petroleum industry. WesternGeco, jointly owned with Baker Hughes, is a surface seismic company. On January 29, 2004, Schlumberger completed the sale of its SchlumbergerSema business to Atos Origin. During the year ended December 31, 2004, Schlumberger completed the initial public offering of Axalto and no longer retains any ownership interest in this business.

Position: (2) 2007 $60 LEAP Call VWY-AL @ $7.00

Entry $57 (3/08) (split adjusted)

BTU - $63.27 - Peabody Energy ** No Stop **

Another amazing performer. BTU soared +13 in the four days after earnings. Thursday saw a decline begin but the news on Friday from Arch Coal was too much for the shorts and another +4 gain began.

I initiated a covered call on Tuesday and it was stopped out on Wednesday's continued spike. I can't complain about a +13 gain but I hate it when that happens.

I still believe the current spike is unsupportable. I am recommending we try it again and sell the Sept $70 Call.

Sell Sept $70 Call BTU-IN currently $4.20
Set stop loss at $67.50
Set profit stop at $58.00

Peabody profits are not related to the price of oil and coal prices will rise along with gas prices. Summer cooling season is just ahead and BTU is going to be a long-term hold. We bought the 2008 LEAP in anticipation of a long-term position.

Earnings schedule: April 18th

Shareholder meeting: May 5th

Company Info:

Peabody Energy Corporation (Peabody) is the largest 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.

Position: 2008 $55 LEAP Call LLW-AK @ $9.50
Cost increased 4/19 by +1.30 to $10.80

April 8th covered call:
Sell June $60 Call BTU-FL @ $2.20, stopped $3.50, 4/19, -1.30

Entry $48.00 (3/07)

PCU - $98.60 - Southern Copper Corp ** No Stop **

PCU continues to move higher but $100 appears to be a stalling point. Still no date for earnings date.

I recommended a covered call on Tuesday and it is still in play. Because of the stop at $100 I am going to lower the stop to avoid an expensive stop loss.

Maintain a stop loss at $101.50
Maintain a profit stop at $93.50

No earnings date available. Est late April

Company Info:

Southern Copper Corporation, formerly Southern Peru Copper Corporation (SPCC), is an integrated producer of copper that operates mining, smelting and refining facilities in the southern part of Peru. The copper operations of the Company involve mining, milling and flotation of copper ore to produce copper concentrates, the smelting of copper concentrates to produce blister copper and the refining of blister copper to produce copper cathodes. SPCC also produces refined copper using the solvent extraction/electrowinning (SX/EW) technology. Silver, molybdenum and small amounts of other metals are contained in copper ore as by-products. Silver sold is recovered in the refining process or as an element of blister copper. Molybdenum is recovered from copper concentrate in a molybdenum by-product plant.

Position: Sept $85 Call PCU-IQ @ $6.20

Tuesday April 18th
Sell May $105 Call PCU-EA currently $2.10
Stop loss $103.50, lowered to $101.50 4/23

Entry $78.00 (3/07)

XLE - $59.82 - Energy Select SPDR ** No Stop **

No change other than a breakout to new highs! This play is measured in $1 per week increments but this week we got +$4.

SPDR Info:

The Energy Select Sector SPDR Fund (the Fund) is an index fund that seeks to replicate the total return of the Energy Select Sector Index of the Standard & Poor's 500 Composite Stock Index (S&P 500 Index). During the fiscal year ended September 30, 2004 (fiscal 2004), the Fund had a return of 48.27%, as compared to the Energy Select Sector Index return of 48.91% and the S&P 500 Index return of 13.87%. The Fund invests in industries, such as energy equipment and services, and oil and gas services, among others. In fiscal 2004, its top five holdings were Exxon Mobil Corp., ChevronTexaco Corp., ConocoPhillips Inc., Schlumberger Ltd. and Occidental Petroleum Corp.

Breakdown of components of the XLE:
http://www.spdrindex.com/spdr/index.cfm?story=composition&symbol=XLE

Position: 2007 $55 LEAP Call OJW-AC @ $4.10

Entry $52.00 (3/07)

RAIL - $69.95 FreightCar America ** Stop loss $60 **

Rail gained +7 for the week on the CSX news and is poised to breakout once again if the earnings on Wednesday are as good as expected.

Earnings schedule: April 26th.

You may think RAIL is not an energy play but you would be wrong. 78% of its rail cars are for coal. You may remember in mid 2005 the coal companies saw a period of soft earnings because there was not enough rail capacity to get their coal to market. RAIL saw a +120% increase in orders in Q4 and saw a backlog of nearly 21,000 cars at year-end. As more energy products are shipped from Canada and into Mexico the demand will continue to grow.


Company Info:

FreightCar America, Inc. is a manufacturer of aluminum-bodied railroad freight cars (railcars) in North America. The Company specializes in the production of coal-carrying railcars, which represented 78% of its deliveries of railcars, during the year ended December 31, 2004, while the balance of its production consisted of a broad spectrum of railcar types, including aluminum-bodied and steel-bodied railcars. It also refurbishes and rebuilds railcars and sells forged, cast and fabricated parts for all of the railcars that the Company produces, as well as those manufactured by others. Prior to April 1, 2005, the Company was named FCA Acquisition Corp. On April 1, 2005, a former parent company, also named FreightCar America, Inc., merged with and into FCA Acquisition Corp., with FCA Acquisition Corp. being the surviving corporation. In connection with the merger, FCA Acquisition Corp. changed its name to FreightCar America, Inc.

Currently the longest option you can buy is the September series.

Position: Sept $80 Call RQN-IP @ $4.00

Entry $67.00 (3/07)

OIH - $162.58 - Oil Service Holders ** No stop **

Another +$10 gain for the OIH and another new high. No complaints here. The short put is now out of the money and premiums should begin to decay rapidly on any further moves higher. I am going to put an exit target on the short put and lets take our profit and bail if hit. I am making it $10 because once the premiums break under $10 they tend to decay very slowly. This will represent nearly a $20 profit for us so we can't complain.

Set profit stop on the short $160 ZJO-ML put at $10.00

Holder Info:

The Oil Service HOLDRS Trust issues depositary receipts called Oil Service HOLDRS, representing an undivided beneficial ownership in the common stock of a group of specified companies that, among other things, provide drilling, well-site management, and related products and services for the oil service industry. The Bank of New York is the trustee. The Oil Service HOLDRS Trust was formed under a depositary trust agreement dated February 6, 2001. The 18 issuers of the underlying securities represented by Oil Service HOLDRS, as of August 1, 2005, were Baker Hughes Incorporated, BJ Services Company, Cooper Cameron Corporation, Diamond Offshore Drilling, Inc., ENSCO International Incorporated, Grant Prideco, Inc., GlobalSantaFe Corp., Halliburton Company, Hanover Compressor Company, Nabors Industries Ltd, Noble Corporation, National Oilwell Varco Inc., Rowan Companies, Inc., Transocean Inc., Smith International, Inc., Schlumberger Limited, Tidewater Inc. and Weatherford International Ltd.

(LEAP PUT SALE)

Position: SHORT 2007 $160 LEAP PUT ZJO-ML @ $29.60
Position: LONG July $125 Put OIH-SE @ $1.95
Position: LONG April $120 Put OIH-PD @ $1.95, expired worthless

4/17/06
Buy July $125 PUT OIH-SE currently $1.95 to replace April put

Entry $135 (2/28)

CNI - $47.00 Canadian National Railway ** Stop Loss $45.50 **

CNI reported strong earnings but not as strong as CSX. CNI has lost traction and without some signs of life soon I am going to close this play. If a stock is not moving higher with the sector then look out when the sector turns south.

Earnings: April 20th, EPS +27%, revenue +19%, Income +21%

Company Info:

Canadian National Railway Company (CN), directly and through its subsidiaries, is engaged in the rail and related transportation business. As of December 31, 2005, the Company had a network of approximately 19,200 route miles of track. CN's network spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, British Columbia, Montreal, Halifax, New Orleans and Mobile, Alabama, and the cities of Toronto, Buffalo, Chicago, Detroit, Duluth, Minnesota/Superior, Wisconsin, Green Bay, Minneapolis/St. Paul, Memphis, St. Louis and Jackson, Mississippi, with connections to all points in North America. The Company's revenues are derived from the movement of seven commodity groups, including petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal and automotive.

Position: Oct $50 Call CNI-JJ @ $3.00

Entry $47.95 (3/02)

TLM - $59.85 - Talisman Energy ** Stop Loss $50 **

No change. A new six-week high at $61 was hit on Wednesday and Thursday's pullback was minimal. Talisman is a takeover candidate and we have a 3:1 split coming in May.

Earnings date unavailable: Estimate is sometime in May.
Shareholder meeting: May 9th.

3:1 Stock split scheduled for around May-26th

Prior play commentary:

Talisman is an aggressive driller operating worldwide. Net income increased +139% for 2005. Production increased +7% to 470,000 boe/d and Talisman replaced 189% of those reserves produced. This makes Talisman a very likely takeover target for somebody like Conoco looking to acquire Talisman's nearly 2 billion bbls of proven reserves and its worldwide drilling operations.

Talisman recently announced a 3:1 split to be effective on May-25th. This should provide some added lift to the stock price as we move into the summer rally period. I believe we should buy the October $60 call, which will split into (3) $20 calls and hopefully be in the money before the split occurs. A $20 stock of this caliber should be catnip to players on a budget and I expect it to be bought quickly. With option premiums currently $4.50 they will split to a cost of $1.50 each. It is hard to go wrong with a price like that.

3:1 Split scheduled for May-25th.

Company info:

Talisman Energy Inc. (Talisman) is an independent international upstream oil and gas company whose main business activities include exploration, development, production, transporting and marketing of crude oil, natural gas and natural gas liquids. The Company's operations, during the year ended December 31, 2004, were conducted principally in four geographic segments: North America, the North Sea, Southeast Asia and Algeria. The Trinidad Angostura project began production in January 2005. Exploration is being advanced in other areas outside the principal geographic segments, including Alaska, Colombia, Qatar and Peru. During 2004, total production averaged 438 million barrels of oil equivalent per day (mboe/d) and the Company exited the year producing 452 mboe/d in December. In 2004, the Company drilled 641 successful wells.

Position: October $60 Call TLM-JL @ $6.00

Entry $56.44 (3/05)

DO - $95.38 - Diamond Offshore Drilling ** Stop Loss $70 **

Diamond set a new all time high on Friday of $96.20. No challenge here and no change in plan. Earnings should be strong.

Earnings schedule: April 26th

Company Info:

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.

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
Cost adjustment +1.80 on 3/29 short call stop. Cost = $11.80

Tuesday Feb-21st cost reduction strategy:
Sell the September $95 Call DO-IS @ $4.90, stopped 3/29, $6.70
Set a stop loss on the call at DO $90, changed to $89 3/19
Buy back the call on a dip to $68. Changed to $75 on 3/05

Entry $75 (2/15)

RIG - $87.00 - Transocean Inc ** No stop **

RIG hit a new all time high at $87.67 on Friday. Uptrend support is $85 and the upward trend is still intact. Slow and steady is winning this race.

I recommended a covered call on Tuesday using the May $90 strike.

Maintain a stop loss at $89 on the short call.
Maintain a profit stop at $84 on the short call.

Earnings schedule: May 4th

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
Cost reduction:
Added +0.80 cents on 3/1 Call stop. Cost = $9.80
Added +1.70 on 4/6 call stop. Cost = $11.50

Monday Mar-20TH cost reduction strategy:
Sell the May $85 call RIG-EQ @ $2.80, stopped @ $4.50 4/6, -1.70
Set a profit stop at $74
Set a stop loss at $84.95

Tuesday Feb-21st insurance strategy:
Sell the March $75 Call RIG-CO @ $1.90, stopped at $2.70 3/01
Buy the May $65 Put RIG-QM @ $2.00
Maintain a profit stop on the put at $57

Tuesday April 18th cost reduction call
Sell May $90 Call RIG-ER @ $1.80
Stop loss $89.


Entry $75.00 (2/14)

GI - $75.18 - Giant Industries ** Stop Loss $66 **

Giant made a new high on Friday and the trend is still intact. No earnings date has been established.

No earnings date available: Estimate late May

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
Cost reduction:
Cost reduced by -3.75 on 3/12 to $4.75.
Cost increased by +2.00 on 4/05 to $6.75

Monday Mar-20TH cost reduction strategy:
Sell the June $75 call GI-FO @ $2.40, stopped 4/05 @ $4.40, -2.00
Set a profit stop at $58.50
Set a stop loss at $72.50

Tuesday Feb-21st cost reduction strategy:
Sell the June $75 Call GI-FO @ $5.60, closed 3/12 $1.85, +3.75
Set a stop loss on the call at $73, changed to $69 3/05
Set a profit stop on the call at $52, changed to $56 on 2/26

Entry $60 (2/14)

HP - $75.39 - Helmerich Payne ** Stop loss $66 **

HP continued to move higher and was very steady for the week. Very little volatility and earnings are next Thursday.

Earnings date: April 27th

Company info:

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 RIG's warning.

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
Cost reduction: Cost reduced by -2.75 on 3/8 to $4.45.
Cost increased: Cost increased by +0.95 on 4/11 CC stop to $5.40

Monday Mar-20TH cost reduction strategy:
Sell the June $75 call HP-FO @ $2.05, $3.00, 4/11, -0.95
Set a profit stop at $62.00
Set a stop loss at $74.50

Tuesday Feb-21st cost reduction strategy:
Sell the June $70 Call HP-FN @ $4.70, closed 3/8 $1.95, +2.75
Set a stop loss on the call at $69.95
Set a profit stop on the call at $59, changed to $61 2/26

HP Entry $69 (2/13)

NOV - $71.12 - National Oilwell Varco ** Stop Loss $62 **

NOV continued higher and broke $72 on Wednesday. Nice steady trend and earnings next Wednesday. Hurricane season just ahead and earnings should be good.

Earnings date: April 26th

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
Cost reduction: Cost reduced by -2.90 on 3/3 to $4.00.
Cost increased: Cost increased by +2.50 on 4/11 to $6.50

Monday Mar-20TH cost reduction strategy:
Sell the May $65 call NOV-EM @ $2.40, exit $4.90, 4/11, -2.50
Set a profit stop at $56.50
Set a stop loss at $66.75 (yes it is in the money) I am betting on resistance at $65 to hold ahead of hurricane season.

Tuesday Feb-21st cost reduction strategy:
Sell the May $70 Call NOV-EN @ $4.20, closed 3/7 $1.30, +2.90
Set a stop loss on the call at $69.95
Set a profit stop on the call at $58

NOV Entry $61.50 (2/14)

SUN - $87.14 - Sunoco ** Stop Loss $72 **

SUN finally broke resistance at $81 and sprinted to higher ground. The consolidation has taken two months but finally appears to be over. They finally announced an earnings date and earnings should be strong.

Maintain the profit stop on the May $70 put at $66. We should never hit it but we should be ready if it comes.

Earnings date: May 3rd
Shareholder meeting: May 4th

Original play description:

Sunoco has refining capacity of nearly 1 mbpd spread over five refineries and controls 4500 miles of pipeline and sells through 4528 retail outlets. They would make a very nice takeover target for Valero with a market cap of only $10.4 billion compared to $33 billion for Valero. Net income rose +61% in Q4 to $974 million. Valero made $1.35B for the same period.

Company Info:

Sunoco, Inc. operates through its subsidiaries as a petroleum refiner and marketer, and chemicals manufacturer with interests in logistics and coke making. Sunoco's petroleum refining and marketing operations include the manufacturing and marketing of a range of petroleum products, including fuels, lubricants and some petrochemicals. Sunoco's chemical operations consist of the manufacturing, distribution and marketing of commodity and intermediate petrochemicals. The Company's operations are organized into five business segments: refining and supply, retail marketing, chemicals, logistics and coke.

Position: 2007 $80 LEAP VUN-AP @ $8.70

Tuesday Feb-21st insurance strategy:
Sell the May $90 Call SUN-EA @ $2.95, closed 3/27 @ .85, +2.10
Buy the May $70 Put SUN-QN @ $2.75
Set a stop loss on the call at $89.95.
Set a profit stop on the put at $65, changed to $66 2/26.
Set a profit stop on the call at $70.

Entry $72.51 (2/12)

COP - $72.52 - Conoco Phillips ** No Stop **

Conoco finally broke out over that prior resistance at $68 and sprinted to higher ground. Friday's close was an all time high and momentum is finally on our side.

Earnings Schedule: April 26th

Play description:

Conoco continues to hover in the $58-$64 range. This should be support as the acquisition of Burlington Industries approaches. The companies expect it to conclude in the first half of 2006. Burlington reported earnings that nearly doubled the prior year in Q4 and Conoco reported earnings that rose more than +50%. Together they should receive some synergistic benefits and increase shareholder value. Conoco is the most aggressive integrated oil company when it comes to adding reserves. They are not afraid to pay for them and they are clearly planning for the future.

Company Info:

Conoco Phillips 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 Conoco Phillips 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.

Position: 2007 $65 LEAP OJP-AM @ $5.00

Insurance Put: None

Entry $60.00 (02/08)

SU - $88.85 - Suncor Energy ** Stop loss $78.00 **

Suncor continued to sprint higher and make new historic highs through Wednesday. Slight profit taking on Thursday was quickly bought. Their Denver refinery is resuming full production at 90,000 bbls after the longest and most drastic maintenance period in history. Over 400 employees and 1800 contractors were involved in the maintenance.

Earnings schedule: May 4th

Play description:

Suncor is very active in the Canadian oil sands and has a strong plan to ramp production for the next decade. This is a very strong company in charge of their own fate. There are no OPEC concerns, no terrorists and no problems like Hugo Chavez. With the new government in Canada their business problems will likely ease instead of get worse.

I ate lunch with the Vice President of Suncore a couple months ago and he answered my questions very positively and with lots of confidence. I strongly believe this will be a good company for a long time. That does not mean profits cannot be hurt if we suddenly end up with an oil glut but that is not likely.

Company Info:

Suncor Energy Inc. (Suncor), formerly Suncor Inc., is a Canadian integrated energy company that explores for, acquires, develops, produces and markets crude oil and natural gas, transports and refines crude oil and markets petroleum and petrochemical products. Periodically, the Company also markets third-party petroleum products. Suncor also carries on energy trading activities focused principally on buying and selling futures contracts and other derivative instruments based on the commodities the Company produces. The Company has four principal operating business units: Oil Sands; Natural Gas; Energy Marketing and Refining, Canada, and Refining and Marketing, United States of America.

Position: 2007 $85 LEAP OYX-AQ @ $10.40 2/06
Position: 2007 $85 LEAP OYX-AQ @ $7.70 on 2/13,
average cost $9.05
Cost reduction: Cost reduced by -3.60 on 3/8 to $5.45.
Cost increased: Cost increased by +3.95 on 4/6 to $9.40

Monday Mar-20TH cost reduction strategy:
Sell the June $85 call SU-FP @ $2.65, exit 4/6, $6.60, -3.95
Set a profit stop at $71.00
Set a stop loss at $83.50

Tuesday Feb-21st insurance strategy:
Sell the March $80 Call SU-CP @ $2.65, closed 3/8 .20, +2.45
Buy the March $70 Put SU-ON @ $0.85, closed 3/8 $2.00, +1.15
Set a stop loss on the call at $79.95.
Set a profit stop on the put at $65, changed to $70 2/26.
Set a profit stop on the call at $68, changed to $70 2/26.

CCJ - $41.80 - Cameco ** No stop **

New highs for CCJ and lots of talk in the press about the uranium shortage. Earnings next Thursday and they should be strong.

Earnings schedule: April 27th.

Original Play Description:

We were triggered on the breakout at $72.50 on Monday and again on the $67 breakdown target on Wednesday. Each trigger was for a 1/2 position giving us a full position with an average cost of $9.80 each. That turned out to be the closing price on Friday so if you missed either opportunity you did not miss anything. We are going to add another full position after CCJ splits on Feb-23rd.

This is my best single play in the list. Cameco just announced record earnings and raised their forecast for 2006 and beyond. They projected a +40% rise in revenue and a rise in margin from 23% to 28% for 2006. At the same time they announced a 2:1 split for Feb-23rd on the NYSE. They also raised the dividend to 32 cents from 24 cents payable on April 13th.

They also announced they were buying Zircatec for $108 million. Zircatec is a maker of nuclear fuel bundles for Canadian designed heavy water reactors. They said the acquisition would moderately boost 2006 earnings assuming no material changes in operations.

The combination of events including the purchase of Zircatec caused the stock to plunge from its all time high of $82.15 on Feb-1st to close at $69.97 on Friday Feb-3rd. That level remained support for the entire week through Feb-10th.

Company Info:

Cameco Corporation is engaged in exploring, developing, mining and milling uranium ore to produce uranium concentrates. The Company is also a commercial converter of uranium concentrates (U3O8) to UF6 (uranium hexafluoride), as well as a supplier of services to convert uranium concentrates to UO2 (uranium dioxide). Cameco, through its subsidiaries, has a 31.6% limited partnership interest in Bruce Power Limited Partnership, which operates six nuclear reactors in Ontario, Canada. Cameco also owns 53% of Centerra Gold Inc. (TSX: CG), a growth-oriented gold mining and exploration company engaged in the acquisition, exploration, development and operation of gold properties in Central Asia, the former Soviet Union and other emerging markets.

Pre-split entries:
Breakout target $72.50 hit
Position: 2007 $80 LEAP ZBK-AP 1/2 position @ $10.60 (2/06)

Breakdown target $67.00 hit
Position: 2007 $80 LEAP ZBK-AP 1/2 position @ $9.00 (2/08)

Pre-split average cost: $9.80
Post split position: (4) 2007 $40 LEAP ZBK-AH @ $4.90
Cost reduction: -.75 on 3/21, cost now $4.15

Additional Position: 2008 $40 LEAP LTA-AH @ $9.00 on 2/25.
Added after the 2:1 split on 2/24

Put insurance: None

Monday Mar-20TH cost reduction strategy:
Sell the June $40 call CCJ-FH @ $1.75
Set a profit stop at $33.50, hit 3/21, exit $1.00, +0.75
Set a stop loss at $39.95

HAL - $83.33 - Halliburton ** No Stop **

HAL reported a +33% jump in earnings on Friday to $488 million or +91 cents per share. This compares to 72 cents in the same quarter last year. This beat the street by +3 cents. Revenue rose to $5.2 billion. Its energy services division posted a +35% increase in revenue, a sign of strong execution in a tight rig market. RBC Capital is recommending an aggressive buy at these levels.

Earnings: April 21st, 91 cents

Play description:

Halliburton is planning on spinning off KBR, its construction and engineering unit. This should produce a significant bounce in HAL stock. (KBR stands for Kellogg, Brown and Root) HAL is a very strong service company and should soar when it is no longer held in check by the sins of KBR.

2:1 Split to be approved at May 17th shareholder meeting.

Company Info:

Halliburton Company is an oilfield services company, and a provider of engineering and construction services. The Company provides services, products, maintenance, engineering and construction to energy, industrial and governmental customers. Its six business segments are Production Optimization, Fluid Systems, Drilling and Formation Evaluation, Digital and Consulting Solutions, collectively the Energy Services Group, and Government and Infrastructure, and Energy and Chemicals, collectively known as KBR. In August 2004, the Company sold its surface well testing and sub-sea test tree operations to Power Well Service Holdings, LLC. In January 2005, the Company emerged out of the chapter 11 proceedings and can operate the businesses without Bankruptcy Court supervision.

Current position: 2007 $80 LEAP Call VHW-AP @ 11.25

Original Position: 2007 $85 LEAP Call VHW-AQ @ $9.80
Monday March 20th: Position change
Sold the 2007 $85 LEAP VHW-AQ, exit $4.25.
Bought the 2007 $80 LEAP VHW-AP, entry $5.70.

Our adjusted cost in the 2007 $80 LEAPS is now $11.25
The strike is lower and will split into (2) $40 LEAPS @ $5.63

Insurance Put: None until after the split

Entry $79.00 (2/06)

KMG - $106.74 - Kerr Mcgee ** Stop Loss $98.00 **

KMG finally broke resistance at $102 ahead of earnings and appears ready to resume its upward trend. Earnings are next Wednesday.

Earnings date estimate: April 26th

Company Info:

Kerr-McGee Corporation (Kerr-McGee) is an energy and inorganic chemical holding company whose consolidated subsidiaries, joint ventures and other affiliates (together, affiliates) have operations throughout the world. The Company's core businesses include exploration and production, and chemicals. Kerr-McGee's oil and gas exploration and production areas are onshore in the United States, in the Gulf of Mexico, the United Kingdom sector of the North Sea and China. In addition, the Company has exploration programs in Alaska, Brazil, Morocco, Bahamas and Benin. Kerr-McGee affiliates engaged in chemical businesses produce and market inorganic industrial chemicals, lithium-metal-polymer batteries and heavy minerals. On June 25, 2004, the Company completed a merger with Westport Resources Corporation. On March 8, 2005, the Company annonced its decision to proceed with the proposal to pursue alternatives for the separation of the chemical business, including a spinoff or sale.


Position: 2007 $115 LEAP Call OGM-AC @ $9.00
Cost reduction: Cost reduced by -2.20 on 3/7 to $6.80
Cost increased: Cost increased by +1.00, 4/10 to $7.80

Monday Mar-20TH cost reduction strategy:
Sell the July $110 call KMG-GB @ $2.50, exit 4/10, 3.50, -1.00
Set a profit stop at $92.00
Set a stop loss at $108.50

Tuesday Feb-21st insurance strategy:
Sell the April $105 Call KMG-DA @ $3.00, closed 3/7, .80, +2.20
Buy the April $90 Put KMG-PR @ $1.25
Set a stop loss on the call at $104.95.
Set a profit stop on the call at $93.
Set a profit stop on the put at $85. Changed to $88.50, 3/26

Entry $107.00 (2/06)

UPL - $67.46 - Ultra Petroleum ** No Stop **

UPL broke over resistance at $64 and managed a +3 gain on stronger gas prices. This took us out of the covered call for an 85-cent loss. The LEAP increased +$2 so we still made a profit on the move. Earnings are Wednesday.

Earnings date: April 26th

Original play description:

Ultra was one of the few that did not get hit on Monday. The breakdown target at $62 was our trigger on Tuesday but unfortunately it was followed by a -$7 drop on Thursday. They announced earnings on Tuesday that beat the street but they were hammered on Thursday after announcing they entered into a pipeline agreement with Rockies Express Pipeline (REP) for $70 million a year for ten years starting in 2007. REP is obligated to build pipelines to southwestern Wyoming and transport 200,000 MMBtu per day of gas to connecting hubs for Ultra.

Ultra's finding and development cost for 2005 was $0.56 per MCFe and reserve replacement was 773%, both the best in the industry. Ultra has 17 years of drilling planned with 160 wells planned for 2006 in Wyoming alone. They produced 73.4 Bcfe of gas in 2005 which suggests the 200,000 MMBtu capacity being contracted above is only a portion of their expected Wyoming production. With Wyoming gas selling for more than $8 per MMBtu in January that represents $1.6 million in gas production through the pipeline per day or roughly $584 million per year. I would gladly pay $70 million for pipes to carry $584 million of gas to market.

Ultra ended 2005 with no debt. Their profit per MCFe was $6.94 in Q4. Net profit increased +111% in 2005, ROE was 55%. Proved reserves in Wyoming at the end of 2005 were 2.022 TCFe of gas, a +32% increase over 2004. Proved and probable reserves were 6.29 TCFe. This represents better than a 2000% increase in reserve growth since 1999. Ultra has more than 2877 scheduled wells to drill in Wyoming over the next 17 years.

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.

Position: 2007 $70 LEAP Call OZH-AN @ $10.70
Cost reduction: Cost reduced by -3.00 on 3/7 to $7.70
Cost reduction: Cost reduced by -3.30 on 3/7 to $4.40
Cost increased: Cost increased by +.85 on 4/18 to $5.25

Monday Mar-20TH cost reduction strategy:
Sell the June $70 call UPL-FN @ $1.85, exit 2.70, 4/18, -85
Set a profit stop at $52.00
Set a stop loss at $70.50

Tuesday Feb-21st insurance strategy:
Sell the June $65 Call UPL-FM @ $4.30, closed 3/7 $1.30, +3.00
Buy the June $55 Put UPL-RK @ $4.30, closed 3/7 $7.30, +3.30
Set a stop loss on the call at $64.95.
Set a profit stop on the put at $50.
Set a profit stop on the call at $50.

Entry $62 (2/08)

VLO - $69.07 Valero ** No Stop **

VLO is rockin now! The higher oil prices for light crude mean wider crack spreads for Valero on their heavy crude plants. They are printing money and earnings are next Tuesday.

Earnings date: April 25th

Company Info:

Valero Energy Corporation (Valero) owns and operates 18 refineries having a combined throughput capacity, including crude oil and other feedstocks, of approximately 3.3 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 gasoline, 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.

Position: 2007 $60 LEAP Call VHB-AL @ $6.60
1/30 Cost reduced by spread on put/call -0.90, now $5.70
2/06 Cost reduced by -1.00 on closed call, now $4.70
2/09 Cost reduced by -3.10 on closed $57 put, now $1.60
2/14 Cost increased by +0.15 on exited Mar-$45 put, now $1.75
4/11 Cost increased by +1.20 on CC stop loss, now $2.95

Monday Mar-20TH cost reduction strategy:
Sell the June $67.50 call ZPY-FR @ $1.25, exit 2.45, 4/11, -1.20
Set a profit stop at $53.75
Set a stop loss at $64.50

Monday Feb-13th
Set profit stop on March $45 put at $48 on VLO, exit $1.05 2/14
Insurance Put: March $45 Put VLO-OI @ $1.20
Put entered on 12/27 when VLO traded at $51

Monday Feb-6th:
Close the March $65 Call VLO-CM @ $1.50, +1.00
Set a profit target on the March $57 put at $54, exit $4.70 (2/9)

Monday Jan-30th:
Sell March $65 Call VLO-CM @ $2.50 bid
Buy March $57.50 Put VLO-OY @ $1.60 ask
Set a stop loss on the call at $64. Profit stop at $54
Set a profit stop on the put at $52.

Entry $52.30 (12/16)

CHK - $33.25 Chesapeake Energy ** No Stop **

CHK finally broke out of its range and resistance at $32.50 but the run was brief. CHK is very lethargic and can't seem to find a trend. We will try another cost reduction play after earnings. We have been snake bitten twice so the third time should be the charm.


Earnings date: May 1st

Prior commentary:
The CEO said on Wednesday (2/01) that CHK is more likely a buyer of other companies and assets than a target of a takeover itself. He said there were many potential targets smaller than Chesapeake and the drop in gas prices made them attractive. He said gas prices should remain in the $7.50-$10.50 range the rest of the year. He did not expect any major to make a big play like Conoco did when it purchased Burlington late last year for $35 billion. He also said CHK's $2.2 billion acquisition of Columbia Natural Resources was going better than planned and the opportunity appears to be bigger than originally thought. McClendon said CHK had actively hedged its output when prices were higher and were profiting from the swings in prices. He said the plunge in gas prices was "fantastic" because it made acquisitions cheaper, stemmed demand destruction and gave consumers a break on their utility bills. CHK also announced the private placement of $500 million in 6.5% notes due in 2017. The proceeds would be used to pay off bank debt. What a deal! Gas will be $30 by then and the $500 million plus interest will be chump change.

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.

Position: 2007 $35 LEAP VEC-AG @ $4.00
Cost increased: +55 cents on 1/30 covered call. Cost $4.55
Cost reduction: -40 cents on 2/21 covered call. Cost $4.15
Cost increased: Expired put insurance +2.30. Cost = $6.45

Insurance Put:
April $25 CHK-PE when CHK traded at $28 on 11/07 @ $2.30, expired

Covered Call 12/27:
Sold the April $35 Call CHK-DG currently $2.15
Set a stop loss on the call at $34.95, exit @ $2.70, -.55, 1/30

Tuesday Feb-21st cost reduction strategy:
Sell the April $32.50 Call CHK-DZ @ $1.40, stop 3/30, 1.00, +.40
Set a stop loss on the call at $32.50.
Set a profit stop on the call at $27, change to $28 on 2/26.

Entry $29 (11/04)

 


Leaps Trader Watch List

Yellow Metal

I am convinced gold is going much higher before year-end along with oil prices. I believe OPEC countries are hedging their petrodollars with gold in case of an attack on Iran. I know we have a full portfolio but I will drop something if we get hit on this watch list entry.

I wanted to play Freeport McMoran but FCX is more of a copper play than gold. The chart was stronger than Newmont but the asset base is only a fraction of Newmonts holdings. Since I want to be in a gold play and there are no options on the GLD or IAU I am stuck with Newmont and their 93 million ounces of gold reserves.

I have heard or read forecasts on gold from several people I respect and the numbers will scare you. For various reasons they expect gold to be between $800 and $1000 over the next 18-24 months. I know this sounds crazy and brings back memories of the gold bug infestation back in the 1980s. However, this time we have Peak Oil in the mix and the potential for serious military confrontations over the next two years. India is devouring gold at the highest rate in history and all the factors are lining up for a squeeze.
 

Dropped Entries

None


New Watch List Entries
NEM
Newmont Mining

Current Watch List

NEM $57.52 - Newmont Mining

Newmont Mining Corporation (Newmont) is primarily a gold producer with significant assets or operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, Uzbekistan, Bolivia, New Zealand and Mexico. As of December 31, 2005, Newmont had proven and probable gold reserves of 93.2 million equity ounces and an aggregate land position of approximately 50,600 square miles (131,100 square kilometers). The Company is also engaged in the production of copper, principally through its Batu Hijau operation in Indonesia. Its operations are in Nevada, Peru, Indonesia and Australia/New Zealand and has two development projects in Ghana. The Company also has a Merchant Banking Segment and an Exploration Segment.

Breakdown trigger $53.00
Buy 2008 $60 LEAP Call WIE-AL
 


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