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Weekly Newsletter, Saturday, 05/20/2006

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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

The Pain Continues

The market implosion continued and energy stocks were hammered again despite oil prices holding in a narrow range between $68-$70.50. Gas prices were crushed on news of a stronger than expected build in the weekly inventory report. This knocked gas prices back to $5.85 and a new 52-week low. When gas prices fall it depresses coal stocks as well. Energy companies with both typed of generation capability will use gas when the BTU price is cheaper because of the cleaner emissions and the vastly easier burning process. Once gas begins to rise again so will the price of companies like Peabody. Gas is highly seasonal and this is the low season between winter heating and winter cooling demand. There is likely more pain ahead for gas and coal before that summer demand begins to decrease the inventory levels.

Oil prices remained above support at $68 despite some ugly markets. The Dow's -214 drop on Wednesday and the implosion in the metals could not push oil below $68. I view this has strongly positive and evidence funds were keeping their oil positions.

The June contract (CL06M) ended trading on Friday and the July contract (CL06N) becomes current as of Monday. June closed at $68.60 and July at $69.25. On the July contract $68.75 is the same support level as $68 on the June contract. I would like to think crude prices would rise on Monday as traders moved into the July positions but I am not convinced. OPEC was in the news on Friday saying that there would likely be no cuts in production quotas at the June meeting. I doubt it would make any difference since nobody is obeying them anyway. Iran did say it was going to slow deliveries to accommodate a temporary drop in refinery capacity.

Chavez continued to rile the US with his announcement that he was considering selling his oil in euros. I believe it was just a boastful bluff but you never know.

Japan said this week they are planning on increasing their strategic oil reserves. Unlike the US Japan stores the refined product rather than crude oil. They currently have 90 days of reserves, 13.5 billion gallons of gasoline, diesel, etc. That is roughly 325 million bbls. They are considering raising it to 18.5 billion gallons or 120 days supply, roughly 440 million bbls. China said last week they were going to add to their strategic reserves and create 2-3 more oil reserves of 36.5 million bbls each. Each would require the equivalent of 45 days of excess global production to fill. That is assuming they used heavy Saudi crude and I believe that is a faulty assumption. Japan needs mostly light crude and we currently don't have any extra to go around. If they filled them in the off peak cycles it could take them a couple years to accumulate the needed reserves in addition to the current 33 million bbl reserve they just completed but have yet to fill due to the high price of oil. They are currently constructing a total of 101.9 million bbls of storage with another 36.5 mb facility still without a firm site. When all are filled it will equate to 20 days of China's consumption. With China growing at the rate of 9-10% per year their economy will double by the end of 2011. They currently consume around 8 mbpd and consumption is growing at more than +7.5% per year. This is more than seven time faster than the US growth. China is expected to more than double the number of automobiles by 2010. That is 90 times its 1990 level. If China doubles its oil consumption by 2011 as expected that additional +8 mbpd is more than all the anticipated new production coming online worldwide through 2012. That does not take into consideration the current average annual decline of -5% in existing fields. Essentially we have to add +5% every year to stay even and that does not count any additional global consumption.

I spelled out the detail on China to emphasize that any decline in the price of oil will only be temporary. I did not even get into the India topic. They are only a couple years behind China on the growth curve and will also be a major global consumer by 2010. They only consume 2.9 mbpd now but that is increasing rapidly.

While the price of oil will eventually rise to $100 a barrel and higher and probably in the next couple of years that does not mean it will be a straight line. We will have setbacks as seasonal patterns produce ebbs and flows. Natural disasters will occur and the geopolitical landscape will get even more daunting. As prices rise due to tighter supplies it will promote conservation but any easing of demand will only be temporary. Just like any declines in prices will only be temporary.

Those temporary declines will be enough to knock us out of positions from time to time and sometimes with losses. It is a fact of life proving the need to be long-term investors. When we are knocked out we will bide our time and look for the beginning of the next wave to load up again. Dips should be seen as buying opportunities but that does not mean we should race into every dip. When dealing with seasonal patterns and long term geopolitical problems the dips can be measured in weeks if not months. However, the long-term trend will always be up and we will profit handsomely in the end.

With all that said I am sure everyone realizes this was an expensive week. There is ample evidence that several large hedge funds were forced to unwind their short bonds, long energy positions when bonds began to rally last week. Bonds had been selling off since mid January and it is now apparent that some of those shorted funds had found their way into commodities, primarily energy and metals. When those types of positions are unwound it is normally done quickly and that produces the types of declines we saw in metals and energy last week. Add in option and futures expiration and rampant Fed speculation and it became the perfect storm for commodities. This is the low point of the demand cycle as well. As gasoline demand increases over the next six weeks gasoline prices and crude prices should rise. Around the end of June we should get another dip, depending on hurricane activity, then a rise into the fall demand cycle. The charts below are for the same period in 2005 and 2006. Notice the extreme similarity. Hopefully the post May rebound which took oil prices in 2005 from support at $50 to $68.75 (December contract) will appear again this year. We have the same support only about +$20 higher as a starting point. ($69 on the July contract)

Comparison chart 2005-2006

I added two positions after the market plunge on Wednesday and sent everyone an update. Those positions were McDermott and Trinity Industries. We will be exiting some positions this week as weakness persists in the refining sector and some positions were hit pretty hard. Time to clear the deck for the next cycle. Obviously, had I know in advance about the carry trade about to be unwound in the bonds/commodities we would have exited much sooner. Unfortunately while we can discern long-term trends the individual potholes on our journey can be painful. It is hard not to be stopped out when we have -$20 moves in some stocks like PCU. It is even more frustrating that we were up +$12 in the PCU leap just last Sunday.

Stop losses are in place for disasters and you could easily call this a disaster. The following table is the positions we were stopped out of and the points and percentages for the drop over the last seven days. The average was -14.75 points each and nearly -20%. Most hit new highs the day after the Fed meeting and then imploded on profit taking and the drop in oil. It was painful but better times are ahead.

Post Fed Point Drop Table with Position P/L

Oil Service Index - Daily

June Crude Oil futures Chart - Daily

July Crude Futures - Daily

December Crude Oil Futures Chart - Daily

June Natural Gas Futures Chart - Daily

December Natural Gas Futures Chart - Daily

 


Changes in Portfolio

New Plays
MDR $65.38 McDermott
TRN $63.23 Trinity Industries

Dropped Plays

New Watch List Plays Triggered
BHP $47.76 BHP Billiton Limited

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

4 HEADER, begin SECTION 4 BODY-->

BHP - $43.24 - BHP Billiton Limited

BHP fell about -$9 off its post Fed high to bottom on light support at $42. It rebounded +$2 on Friday afternoon from the post Fed lows and hopefully will begin moving higher from here. We are at the mercy of nearly every commodity as you can see by their company description. That is also a plus since a rebound in several will offset losses in others.

We were triggered on BHP when it dropped through the $46.75 entry point on Monday May-15th.

We will be taking out insurance on this position to get us past any future commodity declines. Buy the June put listed below.

Company Info:

BHP Billiton Limited is a diversified resources group. The Company is an exporter of metallurgical coal for the steel industry; an exporter of energy coal; a producer of iron ore, copper, nickel metal, manganese ore, primary aluminium and manganese and chrome ferroalloys. It also has substantial interests in oil, gas, liquefied natural gas (LNG), diamonds, silver and titanium minerals. BHP Billiton operates in seven segments: Petroleum (oil, natural gas and LNG), Aluminium (aluminium and alumina), Base Metals (copper, silver, zinc and lead), Carbon Steel Materials (metallurgical coal, iron ore and manganese), Diamonds and Specialty Products (diamonds, titanium minerals and metals distribution), Energy Coal (energy coal) and Stainless Steel Materials (nickel metal, and chrome and nickel ferroalloys).

Breakdown trigger $46.75 hit 5/15
Position 2008 $50 LEAP Call LPH-AJ @ $7.50

Insurance put:
Buy JUNE $40 Put BHP-RH currently $.80 cents

Entry $46.75 (5/15)

MDR - $65.35 - McDermott

McDermott is a very large provider of rigs, facilities and platforms for the drilling industry. They also build and/or manage nuclear power plants and are the go to company for almost any major project. They were one of my Top Three Picks for 2006. They were $40 when I recommended them in December for the end of year subscriber special.

McDermott spiked to early $74 after earnings on May 4th when they doubled earnings on a +43% rise in revenue and posted a +100% rise in order backlog to $5.93 billion.

Better yet, after a one day post Fed decline they have held their ground when all other energy stocks were in free fall. $64 is current support and a resumption of any kind of positive market should see them begin to move higher again.

Buy the insurance put recommended below!

Company Info:

J. Ray McDermott is a leading provider of engineering, procurement, construction, and installation services for offshore oil and gas field developments worldwide. McDermott International, Inc. is a leading worldwide energy services company. McDermott's subsidiaries provide engineering, construction, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy.

I hate to recommend a Jan-2007 LEAP because the time is short but the Jan-2008 LEAPS are very expensive for some investors. I am going to list both for reference.

Position 2007 $70 LEAP Call OYZ-AN @ $8.50
or
Position 2008 $75 LEAP Call YAE-AO @ $12.50

Insurance put:
Buy June $60 Put MDR-RL currently $1.15

Entry $66.05 (5/18)

 


Play Updates

Existing Plays

PTR - $112.37 - Petrochina

PTR only lost -$4 for the week and considering it is a $110 stock that is a miracle. I am very bullish on PTR and the +$4 rebound from Friday's lows to post a gain for the day was proof to me this stock has legs once the market weakness is over.

I did add a cautionary insurance put if PTR trades at $108.

Prior commentary:

Petrochina is the fourth largest energy company in the world. It is a government monopoly but it acts like an independent. PTR is aggressively acquiring leases and rapidly expanding its drilling program. It currently has over 10.9 billion bbls of proven reserves and more than 44 TCF of gas. Warren Buffet owns $2.3 billion of PTR stock. It trades at less than $12 per BOE and has a 3.5% dividend yield. PTR owns 14,000 service stations and has 2,900 franchised stations. It is majority owned by China and has unlimited capital for expansion if China likes the deal. I expect several acquisitions by PTR over the next couple years but with a $208 billion market cap and China as the owner it will not be a target itself. China would never give up control of those oil assets. PTR saw its output rise +6.3% in Q1 to 267.7 million bbls when most companies were posting declines in reserves and production. Gas output rose +35.6%. PTR owns 75% of the oil and gas reserves in China and supplies 40% of its needs. This is as close to a permanent lock on a profit as we can get given the rapid growth of China's economy.

Cramer was pounding the table on PTR on Friday saying it was not afraid to drill in communist countries, places torn apart by strife or run by two-bit dictators like Chavez or Morales. With the Chinese government and military behind it there is little chance of somebody trying to confiscate PTR assets.

Company info:

PetroChina Company Limited operates a range of petroleum and related activities through four primary business segments: Exploration and Production Segment, Refining and Marketing Segment, Chemicals and Marketing Segment, and Natural Gas and Pipeline Segment. The activities include the exploration, development, production and sales of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sales of basic petrochemical products, derivative chemical products and other chemical products, and the transmission of natural gas, crude oil and refined products, and the sales of natural gas.

I am using the $120 LEAP instead of the higher strikes because the dip reduced the price to a manageable level. The choice is $120 or $130 and there is only a $3.60 difference in price. Amortized over the next 18 months that is nothing. I only wanted round number strikes in case there is a stock split.

Buy 2008 $120 LEAP Call LJC-AD currently $16.20

Insurance puts:

Buy the June $105 PUT PTR-RA, currently $1.50 only if PTR trades at $108.

Entry 5/14 $116.20

GG $30.15 - Goldcorp ** No Stop **

Unbelievable! Goldcorp, a $38 stock last week plummeted to a low of $28 on Friday. Fortunately we have a 2008 LEAP but it still put us -2.50 in the hole. Who would have thought that gold would correct -$83 dollars in only 7 days? I still have a long term outlook on GG and that is why I did not put a stop on it. Hindsight is always 20:20.

I am adding an insurance put on Goldcorp on the outside chance that Gold has farther to fall. The July $27.50 put is $1.70 and that is about what we would probably lose if I just put a stop on it -$2 from where it closed on Friday. This way we can rest easier for another 60 days.

Company Info:

Goldcorp Inc. (Goldcorp) is a North American-based gold producer engaged in exploration, extraction and processing of gold. The Company's primary asset is its Red Lake Mine, a gold mine in Canada. It's other operations include the Bajo de la Alumbrera gold-copper mine (the Alumbrera Mine) in Argentina; a 100% interest in each of the San Dimas gold-silver mine (the San Dimas Mine); the San Martin gold-silver mine (the San Martin Mine); the Nukay gold-silver mine (the Nukay Mine) in Mexico, and a 100% interest in the Peak gold mine (the Peak Mine) in Australia. Goldcorp also has 100% interests in the Los Filos gold development stage project (the Los Filos Project) in Mexico and the Amapari gold project (the Amapari Project) in Brazil. Goldcorp also owns approximately 59% of Silver Wheaton Corp. (Silver Wheaton), a mining company with 100% of its revenue from silver production.

Breakout trigger $36.00 hit on 5/01
Position: 2008 $35 LEAP Call LGX-AG @ $10.00 5/01

Insurance put:
Buy July $27.50 PUT GG-SY currently $1.70

Entry $36.00 (5/01)

TS $35.38 - Tenaris ** Stopped $40 **

Tenaris turned into the play from hell. Once the 5:1 split was over traction disappeared. When post Fed support broke at $43 it was a race to the exit. It finally hit the 100-day average at $35 on Friday and will probably rebound from here but we were stopped at $40 for a loss of -$3 on the position.

Company Info:

Tenaris S.A. is a global manufacturer of seamless steel pipes for the oil and gas industry and a global supplier of seamless steel pipes for process and power plants and for industrial and automotive applications. It is also a regional supplier of welded steel pipes for oil and gas pipelines in South America. Tenaris focus on providing end-user customers a service that integrates manufacturing, procurement, distribution and on-time delivery of products throughout the world. Incorporated in Luxembourg, the Company has manufacturing facilities in Argentina, Brazil, Canada, Italy, Japan, Mexico, Romania and Venezuela. It also has a proprietary global service and distribution network in over 20 countries. Tenaris' customers include many of the world's major oil and gas companies, as well as a large number of engineering and industrial companies.

Breakout trigger $47.00 hit on 5/01
Position: Dec $52 Call TSW-LX @ $6.20, exit $3.20 5/15 -3.00

Entry $47.00 (5/01)

FTO - $54.26 - Frontier Oil Corp

FTO did very well until Thursday afternoon. Support at $57 finally broke and the drop to $54 was instantaneous. $54 is also support and hopefully will continue holding.

I am adding an insurance put with a trigger.

Stock split: 2:1 scheduled for June 26th

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

Earnings: May 8th. FTO beat the street by +20 cents at $1.02

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 reduced by -60 cents 4/25. Cost = $5.90

Cost reduction play April 18th
Sell May $65 Call FTO-EM @ $2.15, exit $1.55 4/25, +.60
Stop loss $64.95
Profit stop $60.00, hit 4/25

Insurance put:
Buy June $50 Put FTO-RJ, currently $1.30 only if FTO trades below $53.00

Entry $56.00 (4/11)

CSX - $67.25 - CSX Corp

CSX actually gained ground on Tuesday to hit $72.50 but the imploding transports put the skids on it quick. CSX ended up -$3 for the week and is clinging to the $66-$67 level as support.

CSX is by far the best of the railroads and a rebounding Transport index should give CSX wings. We have a 2008 LEAP so I am not really worried about the dip.

However, just to be cautious I am adding an insurance put!


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

Insurance Put:
Buy June $65 PUT CSX-RN currently $1.15

Entry $60.50 (4/03)

SLB - $64.59 - Schlumberger Ltd. ** Stopped $67.00 **

SLB only lost -$4 for the week but hit our stop early Monday morning taking us out for a +3.95 profit. At $64 SLB is just above the 100-day average, which should be decent support if you are interested in trying again.

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
Cost increased: Stop loss 5/02 +1.55 to $8.55
Exit $12.50, 5/15, +3.95

April 24th cost reduction play:
Sell Aug $75 Call SLB-HO @ $2.95, exit $4.50, 5/02, -1.55
Set a profit stop at $64, changed to $66 4/30
Set a stop loss at $72, hit 5/02

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

BTU - $56.10 - Peabody Energy ** No Stop **

BTU lost -13 for the week, -$20 post Fed. However, we are still up +$3 on the LEAP. While I realize that is little consolation it is better than a sharp stick in your eye. We have a 2008 LEAP and I firmly believe we will see new highs before the year is over. The crush in natural gas prices hammered the coal companies and BTU is the leader.

I am adding an insurance put with a trigger just in case gas falls again next week.

Earnings: April 18th, +151% jump on +21% revenue gain.

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
Cost increased 5/01 by +1.70 to $12.50

Insurance put:
Buy JUNE $52.50 PUT BTU-RT, currently $1.15, only if BTU trades under $55.

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

April 24th covered call:
Sell Sept $70 Call BTU-IN @ $4.20, exit $5.90 5/01 -1.70
Set stop loss at $67.50, hit 5/01
Set profit stop at $58.00, changed to 58.50 4/30

Entry $48.00 (3/07)

PCU - $83.20 - Southern Copper Corp ** Stopped $92.00 **

Positively unbelievable! PCU dropped -$30 in seven days or -27% of its value. We were up +$12 last Sunday and barely escaped with a +5.35 profit. I was so mad for two days my wife was afraid to talk to me. But, who would have ever expected that kind of implosion?

Prior commentary:

Part of the loss of traction is due to an announcement by PCU that they are looking to merge with Phelps Dodge (PD), Rio Tinto (RIO), Swiss based Xstrata (XTA.L) or Anglo American (AAL.L). The controlling shareholder of PCU (75% stake) is Grupo Mexico. PCU is looking for a sell off or a dilution of that stake in an effort to join with another global producer and increase profitability. This could be a very good deal for us depending on who end up with the company. PCU should go for a premium.

They are also suffering from the illegal strike at the La Caridad mine in Mexico. It has paralyzed production at the mine for a month. Mexican Labor Ministry has labeled it illegal and PCU is investigating ways to cancel the union agreements and end the strike.

PCU was upgraded by UBS to a "Buy" and Bear Stearns to an "Outperform". Deutsche Securities upped them to a "buy" on April 11th.

Earnings date Apr-26th: EPS +41%, revenue flat due to strikes.

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
Cost increased 4/25 on CC stop by +45 cents. Cost = $6.65
Exit $12.00 5/17 when $92 stop hit, +5.35

Tuesday April 18th
Sell May $105 Call PCU-EA @ $2.10, exit $2.55, 4/25, -.45
Stop loss $103.50, lowered to $101.50 4/23

Entry $78.00 (3/07)

XLE - $54.01 - Energy Select SPDR ** No Stop **

The XLE only gave back -$2 for the week and I consider that amazing since individual components were crawling down their own wells to escape the heat. Friday's close is on strong support so hopefully the carnage is over.

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 - $65.39 FreightCar America ** Stop loss $63 **

Rail gave back -13 from its post Fed high, new historic high by the way, and -$6 of that was this week. We have been lower in this position and there is strong support just below us. Once the transportation sector rebounds RAIL should rebound strongly with it. We got in the position cheap at $4.00 but the decline and the passage of time has pushed the option back to $2.00. It is not worth buying insurance and the only reasonable place for a stop is $61 and a drop to that level would make the premium too worthless to stop out. Last week the option was $6.50 and we have plenty of time to run. Lets hold the position and let it ride.

Earnings: April 26th. +1.67 EPS compared to .22 in 2005.

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. That backlog fell to nearly 18,000 cars at the end of Q1 but still substantial. 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)

TLM - $50.96 - Talisman Energy ** Stopped $54 **

TLM finally broke support of the 100-day average on Monday and took us out of the play for a loss of -2.80. We missed the profit exit by -$1 the prior week and ended up trapped in the implosion. The 3:1 split is Monday 5/26 but it is out of our hands now.

Earnings: May 9th. +40% cash flow, production +14%


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.

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,
Exit $3.20, 5/15, -2.80, when stop hit at $54.

Entry $56.44 (3/05)

DO - $83.55 - Diamond Offshore Drilling ** Stopped $88 **

DO has one of the most vertical charts for the last two weeks. Straight down! We were stopped at $88 when support broke at $90 and we exited the position for a minor +$3 gain. I am amazed that the drillers were hammered for such losses but profit taking is no respecter of names.

Earnings: April 26th, $1.06 compared to 23 cents in 2005

Company Info:

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

Position: 2007 $80 LEAP VCT-AP @ $10.00
Cost adjustment +1.80 on 3/29 short call stop. Cost = $11.80
Cost adjustment +0.80 on 5/07 exit early. Cost = $12.60
Exit $15.60, 5/17, +3.00 when stop hit at $88.

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

May 1st cost reduction strategy:
Sell Sept $100 Call DO-IT @ $6.50, exit 5/07, 7.30, -0.80
Set a stop loss at $97.
Set a profit stop at $84.

Entry $75 (2/15)

RIG - $78.42 - Transocean Inc ** Stopped $79 **

After hitting a new historic post Fed high at just over $90 RIG imploded to a low of $76.19 on Friday. That took us out of the position at the $79 stop for a loss of -2.05 after factoring in the May $65 put insurance that expired as well.

Earnings: May 4th, +61 cents vs +28 cents in prior qtr

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
Cost reduced on 4/25 by -0.45 at CC stop. Cost = $11.05
May $65 put expired worthless - cost now $13.05
Exit 5/18 $11.10, -2.05 when stop hit at $79

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, expired worthless
Maintain a profit stop on the put at $57

Tuesday April 18th cost reduction call
Sell May $90 Call RIG-ER @ $1.80, exit $1.35, 4/25, +0.45
Stop loss $89.


Entry $75.00 (2/14)

GI - $65.64 - Giant Industries ** Stopped $68 **

Giant held on longer than most but in the end gave back -$8 for the week. We exited the play at the stop for a minor profit of +2.55.

Earnings: May 3rd, loss of -85 cents vs +80 cents. Refinery fire cost nearly 1/3 of production capacity for the full qtr.

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
Exit $9.30, 5/18, +2.55, when stop hit at $68

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 - $65.45 - Helmerich Payne ** Stopped $69 **

HP gave back -$16 from the historic post Fed high and -$10 this week. We exited the play when stopped for a -1.20 loss.

Earnings date: April 27th, +1.22 vs 43 cents in 2005.

Company info:

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

Position: Sept $75 Call HP-IO @ $7.20
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
Exit 5/17, $4.20, -1.20, when stop hit at $69

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 - $62.53 - National Oilwell Varco ** Stopped $65 **

NOV followed the pack lower than took us out at the stop at $65 at Monday's open for a -90 cent loss. Of course that was -$5 below what the option was worth at the post Fed high of $73.

Earnings: April 26th, EPS 68 cents vs 33 cents in 2005

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
Exit 5/15, $5.60, -0.90, when stop hit at $65.00

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)

CCJ - $38.83.21 - Cameco ** No stop **

Cameco found support at the 100-day average at $37.25 and rebounded nearly +$2 after the touch. CCJ did see one day of post Fed selling but held its ground after that -$5 drop was over. Because we have a big position in CCJ I am going to add an insurance put with a trigger. I would rather be careful here than just assume this non oil stock is immune to further selling.

Earnings: April 30th. 32 cents vs .07 cents in prior qtr.

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:
Buy June $35 PUT CCJ-RG currently .80 cents
ONLY if CCJ trades at $36.75

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 - $71.06 - Halliburton ** No Stop **

HAL managed to hold on to support at $74 for two days before doing the dive to $68 intraday on Friday. The +$3 rebound was very gratifying. Next support is $65.

The stockholders approved the 2:1 split on Wednesday and it is now scheduled for June 23rd.

Because it is possible for that $65 support level to be targeted now that the split has been deferred for another month I am going to add an insurance put with a trigger. I don't want to spend the money unless I have to but we have a lot invested in HAL as we wait for the split and the KBR spin off. PAR on HAL is $100 after the spin off.

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 scheduled for June 23rd.

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:
Buy July $65 Put HAL-SM currently $1.85
ONLY if HAL trades at $69.

Entry $79.00 (2/06)

UPL - $55.91 - Ultra Petroleum ** Stopped $60 **

UPL did implode on the drop in gas prices and the stop I added last week took us out for a minor profit of only +1.55 but still better than a loss. Once gas prices begin to climb again we will get back on this horse.

Earnings: May 5th, 41 cents +81% vs 23 cents in 2005 qtr.

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
Exit 5/15 $6.80, +1.55, when stop hit at $60

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 - $58.97 Valero ** No Stop **

VLO is still holding on and found support at the 100-day average late in the week. I toyed with exiting this play all week if the 100-day broke but in the end it is still clinging on for dear life. The 200-day is only -$3 below that. After the smoke cleared I decided to keep it because of our low cost basis and they are the strongest refiner. When the gasoline demand picks up in the next couple weeks I think investors will remember who is making it. Still no stop because I don't want to exit.

I am adding an insurance put with a trigger and we will hang on if we get another leg down.

Earnings: April 25th, +60%

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

Insurance put:
5/21 Buy June $55 PUT VLO-RK currently $1.00
only if VLO trades at $57.50

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 - $29.44 Chesapeake Energy ** Closed **

CHK finally broke support at the 200-day average that had held for three months. I was on the fence about keeping CHK last week but the break of support and the falling gas prices pushed me over the edge.

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
Exit $1.95, 5/21, -4.50.

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

Oil Stock That Is Not Really An Oil Stock

The only company I am adding to the watch list is FMC Technologies. They build undersea pipelines and oil field related equipment and services. Read the description below and I thin you will like them. They did decline with the rest of the sector but that was after a +$12 spike the week before on those good earnings. I profiled a call and a put right from the beginning given the volatility in the market.

Jim Brown
 

Dropped Entries

None


New Watch List Entries
FTI
$62.77
FMC Technologies

Current Watch List

FTI - $62.77 - FMC Technologies

FMC Technologies, Inc. provides mission-critical solutions for the energy, food processing and air transportation industries. The Company designs, manufactures and services machinery and systems for its customers through four business segments: Energy Production Systems, Energy Processing Systems, FoodTech and Airport Systems. Energy Production Systems segment designs and manufactures systems, and provides services used by oil and gas companies involved in land and offshore, including deepwater, exploration and production of crude oil and gas. Energy Processing Systems segment designs, manufactures and supplies high-pressure valves and fittings for oilfield service customers. FoodTech segment designs, manufactures and services food processing and handling systems to the food industry. Airport Systems segment is a global supplier of passenger boarding bridges, cargo loaders, and other ground support products and services.

Earnings update on May 9th
The Houston-based machinery manufacturer earned $47 million, or 67 cents a share, compared with breakeven a year ago. Analysts polled by Thomson First Call were estimating earnings of 45 cents a share, in the most recent quarter.
First-quarter revenue rose 27.5% from a year ago to $869.3 million. Analysts were estimating revenue of $819.3 million.
For fiscal 2006, the company increased its earnings guidance to $2.60 to $2.80 a share from $2.20 to $2.40 a share. Analysts surveyed by Thomson First Call are estimating earnings of $2.43 a share.
Its inbound orders in the first quarter increased 74.9% to $1.1 billion from the prior-year quarter. Order backlog climbed to $2.2 billion in the quarter on strong subsea inbound orders.
Energy systems revenue, which contributed 78.2% to total revenue, increased 34.1% to $679.9 million from a year ago. FoodTech business segment revenue rose 10.2% to $123.3 million and airport systems revenue rose 5.4% to $68.2 million.
"We are pleased with the outstanding performance in first quarter. Our results were driven by our subsea systems business as well as our surface systems and fluid control businesses," the company said.

Breakout trigger $63.50
Buy Oct $65 Call FTL-JM currently $5.40
Buy June $60 PUT FTI-RL currently $1.65

Breakdown trigger $60.00
Buy Oct $65 Call FTI-JM currently $5.40
Buy July $55 Put FTI-SL currently $1.00
 


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