Option Investor
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Weekly Newsletter, Saturday, 06/03/2006

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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

Crude Lives!

After testing the range for a week crude oil sprinted higher on Friday for a +2.70 gain from Thursday's lows to close at $72.75 in after hours. There were multiple reasons for the sprint including Iran, Nigeria, OPEC and three different refinery outages.

As I mentioned on Wednesday night I did not believe Iran had a snowballs chance in Hades of accepting the US proposal to stop enrichment and talk. Iran fired back on all fronts as the week progressed with President Mahmoud Ahmadinejad saying we would never give up our rights to nuclear research. His deputy chief of Iran's Atomic Energy Organization said Iran would never accept a cap on enrichment levels as some had suggested. Iran claims it only wants to generate electric power which requires a 5% enrichment level. Uranium enriched to higher levels cannot be used for their reactor technology.

The various statements from the UN council make it clear that Russia and China are not onboard for any material sanctions. Putin said he would not support military enforcement under any circumstance. Britain also issued a statement ruling out military force. It is doubtful China would ever allow it since they are now partners with Iran in some oil ventures. It is going to be a long road to the end of this problem but all parties admit that the next stage could last only a couple weeks before being submitted to the Security Council for action. It should provide a fertile birthplace for new geopolitical concerns and the potential for higher oil prices.

Gasoline demand snapped back to prior levels ahead of the holiday weekend and all indications point to strong holiday driving despite the $3 gasoline. The inventory levels we get next Wednesday will be critical to further price increases for crude. If demand over the holiday weekend increased then supply disruptions from the various refinery outages could create a draw in inventory and fear of shortages as the summer progresses.

Hurricane season is upon us but so far no storms have formed in the Gulf. We are very early in the season with five months to go. Once that first storm forms anywhere near the gulf prices are sure to rise again.

The Minerals Management Service said Thursday that 79 platforms were still offline in the gulf. This represents 22% of gulf oil production and 13% of natural gas. Once the Shell Mars platform is restarted over the next several weeks those production shortfalls will drop considerably. Hopefully they get it running again before the next hurricane hits.

I would not be surprised to see $75 oil this week and $80 this summer. However, the last time I said that something happened to change the outlook and prices crashed. It will be interesting to see how the summer progresses.

I mentioned in the Option Investor Newsletter this weekend that several oil stocks appeared to have formed a bottom and are threatening breakouts. This is a positive sign after the beating they took from the May correction. Some of the potential candidates would be DO, RIG, HP, HAL, CAM, MRO, VLO, GRP, HYDL, NFX, OXY, PXP, SLB, MVK, SWN and THE. I am not going to load up the portfolio again but several of those would make good plays if you want to do your own homework.

We currently have 15 positions plus one I am adding today. That is plenty for this time of year. We need to nurse several back to health after the May correction. That should keep us busy.


Oil Service Index - Daily

July Crude Futures - Daily

December Crude Oil Futures Chart - Daily

July Natural Gas Futures Chart - Daily

December Natural Gas Futures Chart - Daily

 


Changes in Portfolio

New Plays
SLB $66.25 Schlumberger Ltd

Dropped Plays

None


New Watch List Plays Triggered
ACI $49.56 Arch Coal Inc

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

SLB - $66.25 - Schlumberger Ltd

Schlumberger found support at $62 and traded sideways above that level over the past week. Friday's close at $66 represents resistance but a pattern of higher lows suggests it is about to break. The decline in prices removed a lot of the excessive premium from SLB options that we saw earlier in the year. Once this resistance breaks and the new trend begun I believe that premium will return.

S&P upgraded SLB to a buy from hold citing rising demand for oilfield services in regions like the Middle East, Africa and Europe. S&P put an initial target of $76 on the shares.

Company Info:

Schlumberger Limited (Schlumberger) is an oilfield services company, supplying technology, project management and information solutions. Schlumberger consists of two business segments: Schlumberger Oilfield Services and WesternGeco. Schlumberger Oilfield Services is an oilfield services company supplying a range of technology services and solutions to the international oil and gas industry. WesternGeco, 70% owned by Schlumberger and 30% owned by Baker Hughes, is an advanced surface seismic company.

Buy Jan $70 Call VWY-AN currently $6.10

Insurance put: Buy Jul $60 Put SLB-SL ONLY if SLB trades at $63.

Entry $66.25 (6/04)

 

ACI - $47.43 - Arch Coal Inc

Arch continues to creep higher and appears ready to challenge resistance at $50. The post split depression from the 2:1 split back on May 16th has eased and momentum is increasing.

Arch surprised investors back on April 21st when it beat the street and raised guidance for the full year. Arch said they expected higher margins, earnings and cash flow during the second half of the year. This triggered a +$14 run that culminated in a new historic high the day the correction began. That entire $14 run was retraced back to $42 and after a couple false starts the buyers are finally coming back.

Company Info:

Arch Coal, Inc. operates as a coal producer in the United States. The Company's primary business is the production of steam and metallurgical coal from surface and underground mines throughout the United States, for sale to utility, industrial and export markets. Its mines are located in southern West Virginia, eastern Kentucky, Virginia, southern Wyoming, Colorado and Utah. As of December 31, 2005, it operated 21 mines, and controlled approximately 3.1 billion tons of proven and probable coal reserves. During the year ended December 31, 2005, the Company sold approximately 140.2 million tons of coal. The Company has three business segments, which are based on the low-sulfur coal producing regions in the United States, in which the Company has operations. These segments are the Central Appalachia region, the Powder River Basin and the Western Bituminous region. On December 31, 2005, the Company sold its 100% interest in Hobet Mining, Inc., Apogee Coal Company and Catenary Coal Company.


Position: Jan $55 Call ACI-AK @ $4.50

Insurance put: Buy July $45 Put ACI-SI only if ACI trades at $47

Entry $48.36 (5/31)

 


Play Updates

Existing Plays

FTI - $68.19 - FMC Technologies

FTI continued its run with a +4 gain for the week. The June insurance put is now out of range and will hopefully expire worthless with FTI well over $70. Citigroup upgraded FTI from hold to buy with a price target of $78 back on May 22nd and the stock has been going up ever since. The historic high is just under $72 hit back on May 10th.

Profit stop: Exit put only on a touch of $56.50

Company info:

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 Hit 5/23
Position: Oct $65 Call FTI-JM @ $5.80
Position: June $60 PUT FTI-RL @ $1.10

Entry $63.50 (5/23)

TIE - $39.96 - Titanium Metals

TIE rose to break resistance at 38.50 and could now be getting ready to accelerate after three weeks in the dumps. The historic high is $47.62 set back on May 10th. I would love to see TIE break that record. TIE was upgraded on Thursday to buy from neutral by FTN Midwest.

TIE has split 2:1 THREE times in the last 12 months. TIE is 51% owned by insiders which reduces the float and makes us a partner in the business rather than just a shareholder. Anybody with a 51% ownership is going to be doing everything they can to make their stock grow and we get to benefit. The company announced plans to increase production by +50% at the stockholder meeting last week.

Company info:

Titanium Metals Corporation (TIMET) is a producer of titanium sponge, melted products and a variety of mill products for aerospace, industrial and other applications. For the commercial aerospace industry, the Company supplies titanium products to manufacturers of commercial airframes. Outside of aerospace markets, the Company manufactures a range of products for customers in the chemical process, oil and gas, consumer, sporting goods, automotive, power generation and armor/armament industries. Approximately 15% of the Company's sales revenue, during the year ended December 31, 2005, was generated by sales into industrial and emerging markets. TIMET markets and sells its products in the United States, the United Kingdom, France and Italy.

Buy December $45 Call TIE-LI currently $5.70 (no LEAPS)

Insurance put:
5/28 Buy July $30 PUT TIE-SF ONLY if TIE trades at $34.

Entry $38.22 (5/28)

BHP - $42.65 - BHP Billiton Limited ** No Stop **

BHP has not completely recovered from the May commodity dump. With copper limit down last Wednesday I am surprised we did not get a bigger drop in BHP.

The June $40 insurance put may still come back into play. If we do get a substantial decline I would target $37.50 to close the put for a profit. With only two weeks remaining I am doubtful we will get that opportunity but we do need to be ready.

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:
Position: JUNE $40 Put BHP-RH @ $1.50 cents (5/22)

Entry $46.75 (5/15)

MDR - $46.11 - McDermott ** No Stop **

McDermott split 3:2 on June 1st giving us 150 shares per contract rather than 100. This might be a good spot to add to the MDR position with a long term outlook.

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.

3:2 split on June 1st reduced the strike price by 1/3 and increased the contract size to 150 shares.

Position 2007 $70 LEAP Call OYZ-AN @ $8.50
Split into 2007 $46.66 LEAP OYZ-AX @ $5.66
or
Position 2008 $75 LEAP Call YAE-AO @ $12.50
Split into 2008 $50.00 LEAP YAE-AJ @ $8.33

Insurance put:
Position: June $60 Put MDR-RL @ $1.25 (5/22)
Split into June $40 Put MHH-RH @ $0.83

Entry $44.02 (5/18)

TRN - $58.44 - Trinity Industries ** No Stop **

Trinity announced the price for its convertible debt offering for $450 million. The notes can be converted to stock at $78.34 per share and pay 3.875% interest until converted. While this is a long term positive for its business it is short term negative in the eyes of investors as it will eventually dilute the outstanding shares. TRN dropped -$4 on the news.

The June $60 insurance put is now in the money and worth $2.50 compared to our cost of $1.00. I considered closing the put but there was no attempt to rally in TRN on Friday. Instead of an outright close I am going to put a stop loss on the put and a profit stop.

Stop loss: Exit put if TRN trades at $58.75
Profit stop: Exit put if TRN trades at $56.

Company Info:

Trinity Industries, Inc. is a diversified industrial company that provides a variety of products and services for the transportation, industrial, construction and energy sectors. The Company is engaged in the manufacturing and marketing of railcars, inland barges, concrete and aggregates, highway products, beams and girders used in highway construction, weld pipe fittings, tank containers and structural wind towers. In addition, it leases railcars to customers through a captive leasing business, Trinity Industries Leasing Company. Trinity has five business groups: Rail Group, Railcar Leasing and Management Services Group, Construction Products Group, Inland Barge Group and the Energy Equipment Group.

(No LEAPS)
Position: October $70 Call TRN-JN @ $4.00 (currently $3.20)

Insurance put:
Position: June $60 Put TRN-RL @ $1.00 (5/22)

Entry $64.88 (5/18)

PTR - $107.38 - Petrochina ** No Stop **

PTR completed another tough week and no signs of a rebound have appeared. I still believe this is related to the global margin call and once a rebound arrives it will be strong.

The plan for the week was to exit the insurance put with a continued rise in order to save some of the expensive premium. The gap open on Tuesday took us out of the put at #2.70 but the decline below $107 later that day put us back into the position at $2.65. With the decline still intact I am going to target $103 as a put exit as well as $110. Time is growing short on the June options.

Close the insurance put, June $105 PUT PTR-RA if PTR trades over $110.

Close the insurance put, June $105 Put PTR-RA if PTR trades at $103.

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.

Position: 2008 $120 LEAP Call LJC-AD @ $16.20

Insurance puts:

Position: June $105 PUT PTR-RA, @ $4.20 (5/22)

Entry 5/14 $116.20

GG $30.34 - Goldcorp ** No Stop **

Goldcorp continues to hold above the 100-day average while we wait for gold bugs to return. I believe the selling in gold is nearly over and the dollar is going to decline further over the next two weeks. This will raise the price of gold. We have a July insurance put so we have plenty of time to wait.

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:
Position: July $27.50 PUT GG-SY @ $1.95

Entry $36.00 (5/01)

FTO - $57.10 - Frontier Oil Corp

FTO has rebounded out of the May dip and appears ready to break resistance at $58. This is refinery season and they should come back into favor as summer progresses.

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:
Position: June $50 Put FTO-RJ, @ $1.80 (5/22)

Entry $56.00 (4/11)

CSX - $68.58 - CSX Corp ** No Stop **

CSX appears to be gaining momentum and a moving train is hard to stop. Resistance at $68.50 could be the last pause before a new high.

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.

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:
Position: June $65 PUT CSX-RN @ $1.20

Entry $60.50 (4/03)

BTU - $64.91 - Peabody Energy ** No Stop **

BTU finally produced a credible rally and $65.75 could be the last hurdle before a sprint to a new high. Hotter weather will pushup gas prices and coal sentiment will follow.

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:
Position: JUNE $52.50 PUT BTU-RT, @ $2.70 (5/22)

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)

XLE - $56.48 - Energy Select SPDR ** No Stop **

The XLE has broken out of its correction congestion below $56 and could be headed for a retest of the highs at $60. No change in the play.

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)

CCJ - $43.51 - Cameco ** No stop **

Cameco continues to be a strong performer and is closing in on a new high less than $2 above. After several weeks of sideways consolidation the bullish trend has returned.

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:
Position: June $35 PUT CCJ-RG @ 1.20 (5/22)


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 - $76.75 - Halliburton ** No Stop **

HAL has broken out of resistance at $76 and strength appears to be returning to the stock. $82 is the next resistance level as we near a new high. The split on June 23rd should attract some new attention. HAL and SLB should continue to prosper as long as oil stays over $50. That gives us a lot of room to wander and HAL has shown that volatility over the last year.

2:1 split scheduled for June 23rd.

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:
Position: July $65 Put HAL-SM @ $2.00 (5/22)


Entry $79.00 (2/06)

VLO - $63.06 Valero ** No Stop **

VLO broke over initial resistance at $62 and appears ready to rumble. The refinery outage and the loss of -50,000 bbls of gasoline per day and -20,000 bbls of distillate knocked VLO back on Wednesday but it recovered quickly.

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:
Position: June $55 PUT VLO-RK @ $1.50 (5/22)


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)

 


Leaps Trader Watch List

Service With A Smile

The oil field service companies appear to be coming back faster than the other energy sectors. I am adding BHI as a candidate after it hit a new high on Friday. I am hoping for a pullback and will send an email update when I think it is safe to enter.

Check your email during the week for updates on BHI and any other stocks that become targets.

Jim Brown
 

Dropped Entries

None


New Watch List Entries
BHI
$88.58
Baker Hughes Intl

Current Watch List

BHI - $88.58 - Baker Hughes Intl

Baker Hughes Incorporated (Baker Hughes) is engaged in the oilfield services industry. The Company supplies wellbore-related products and technology services and systems to the oil and natural gas industry on a worldwide basis, including products and services for drilling, formation evaluation, completion and production of oil and natural gas wells. Baker Hughes operates through subsidiaries, affiliates, ventures and alliances. It operates in three business segments: Drilling and Evaluation, Completion and Production, and WesternGeco. The Drilling and Evaluation segment consists of the Baker Hughes Drilling Fluids, Hughes Christensen, INTEQ and Baker Atlas divisions. The Completion and Production segment consists of the Baker Oil Tools, Baker Petrolite and Centrilift divisions. The WesternGeco segment consists of the Company's 30% equity interest in WesternGeco, a seismic venture with Schlumberger Limited. WesternGeco provides reservoir imaging, monitoring and development services.

BHI has been surging higher for two weeks and hit its historic high on Friday. I am hoping for a pullback to deflate some option premiums before making the entry. I am going to target something in the $85.50 range but I do not want to make it a hard entry in case we get more than a single day of profit taking.

No trigger: Wait for newsletter confirmation to enter.

Buy Jan $95 Call BHI-AS currently $7.70
 


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