Option Investor

Weekly Newsletter, Saturday, 10/28/2006

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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

Terrorist Premium

It was small but it was enough to rescue oil prices from another afternoon swoon on Friday. It was announced on Friday that Al-Qaeda was planning an attack on Saudi Arabia's massive Ras Tanura oil terminal. Ras Tanura translated means the "top head of the barbeque spit" in Arabic but for the rest of the world it stands for the largest oil export terminal on the planet. 8% of the world's oil flows through it every day. The picture below shows the oil farm and several of the loading terminals built offshore.

Ras Tanura Onshore

Ras Tanura Offshore

Truth is no stranger than fiction in this event. In the BBC docudrama, The Man Who Broke Britain, the price of oil spikes dramatically after a terrorist attack at Ras Tanura. In the FX movie in 2005, Oil Storm, the hurricane induced oil shortage is further crippled by a terrorist attack at the same facility. This facility is well protected on the land side and it would be practically impossible for terrorists to mount a credible attack. On the ocean side considerable damage could be done but it is so large it would be hard to cripple it completely unless the entire tank farm could be set ablaze. The complex serves as a refinery and as an oil export terminal and reportedly can handle more than six million bbls per day.

In theory the threat should now be over since the British and American naval forces have arrived in force to protect it from water borne attack. Reportedly there are missiles based on land to protect against an airborne attack as well. This would be a choice target for terrorists but may be too big a target to handle with weapons at their disposal.

The key here is that the terrorist premium has been reinstated. Even if Ras Tanura is now protected it only means they will try for a smaller target(s) that will be harder to defend but may accomplish the same goal of disrupting oil exports. Osama and al-Zawahiri have both urged the attack of oil facilities in the Middle East to inflict pain on the consuming Americans. The most recent call for attack was on Sept-11th by al-Zawahiri.

This terror premium arrived just in time to coincide with the advent of cold weather in the US. Crude prices appear to be firming in the $59-$61 range and a move back over $62 could begin a new trend higher. Oil inventories took a sharp dive last week of -3.2 mb with a drop if -1.4 mb in distillates and -2.8 mb in gasoline stocks. This may have been just a fluke caused by delivery problems, a platform shutdown in the Gulf or continued refinery outages for maintenance or all of the above. If this week's inventory report shows another decline the bottom in crude should be behind us.

Gas injections into storage also took a sharp drop last week to only 19bcf bringing the total in storage to 3,461 bcf. With cold weather blanketing the nation it is unlikely that we will hit the 3.5 tcf storage target but we are going to come very dang close. The current all time record was 3,472 bcf set in Nov-1990. We are currently at 10% more gas in storage than at this time in 2005 and without a cold winter it is doubtful if it will be depleted. However, one good cold snap of several weeks can deplete it very quickly. The next two weeks are expected to be colder than normal in the northeast where gas consumption is high. The November gas contract expired on Friday at $7.12 and in the last hour of trading the December contract fell from a six week high at $8.46 to close at $7.81 and more inline with the crash of the November contract at the close. The November contract dropped from $7.74 to $7.12 in the last hour. This was simply expiration gyrations as traders rolled over positions into the next month or exited completely taking profits from the $2 rise in the last two weeks.

Energy earnings are in full swing with a large portion of next week's earnings devoted to the energy sector. Last week the top five energy companies reported earnings, which totaled over $20 billion in profits for the quarter. That is more than $240 million per day. Not all earnings were positive with BHI the poster child for being slammed on good news. BHI followed the SLB lead in pre-warning that a warm winter and excess supplies of gas "could" slow drilling next year. Neither have seen any decline but both pre-warned just in case. Thanks guys!

In the earnings table below you can see that the list of reporters is starting to show a lot more symbols you have probably never seen. That is because nearly all the larger companies have already reported. After this week energy earnings will slow to a trickle.

Earnings List

Chart of December Crude - Daily

I removed Chesapeake (CHK) from the watch list after they literally blew away earnings and rocketed for a 10% gain.
CHK beat expectations by a mile with earnings of $1.13 vs estimates of 72 cents and earnings of only 43 cents in the year ago quarter. Revenue nearly doubled to $1.93B from $1.08B. CHK said it had resumed full production from all fields after shutting down temporarily due to falling prices and record storage levels. CHK currently has 120 rigs working, up from 73 in 2005, and has plans to increase to 133 by year end and up to 150 in 2007. The CEO said current prices support continued exploration at favorable economic returns. Maybe this will put an end to the cautious warnings by companies like SLB and BHI.

Shell announced it was going to develop its discoveries in the lower tertiary zones deep under the Gulf of Mexico. Recent discoveries by Chevron, Devon, BP, PBR and partners in the same zone has caused a flurry of activity in the deep water region. Shell is going to build a production platform in 10,000 feet of water with some wells in this pay zone going over 30,000 feet. Chevron announced its first successful test at Jack a year ago and then another successful test at Jack 2 back in September. Shell is going to beat Chevron/Devon to the production punch by announcing a multibillion development in this zone last week. Shell plans to exploit three fields, known as Great White, Tobago and Silvertip. Initial production estimates are for 130,000 boe per day. Rough estimates for initial completion of the development are in the $3 billion range. Shell has already drilled eight wells in the area to develop information about the discovery. New technology will have to be developed to extract the oil, some of which will be a heavy crude. Shell will connect the wells to a floating platform anchored in 8,000 feet of water making it the deepest in the world. Big numbers have been tossed about claiming billions of bbls of reserves but analysis firm Wood Mackenzie thinks recoverable oil will be more in the 400-500 million bbls range for Shell. Of the 12 Lower Tertiary discoveries to date the reserve totals for all companies should be in the 2-3 billion bbl range.

In other news Merrill Lynch announced it was buying Houston based Petrie Parkman & Co. Petrie Parkman provides financial advisory services to the gas industry as well as general energy analysis and equity research. Petrie recently advised APC in its $5.1B acquisition of Western Gas Resources. Thomas Petrie, CEO and founder, is a very influential analyst and has industry leading views on the future of the energy business. A recent webcast with his insightful view of the industry can be heard here: http://tinyurl.com/tb969

I am dropping Cameco after their mine disaster last week. I am replacing them with BHP. See the BHP play description for the update on Cameco.

I did not get any complaints last week about the format change so I assume it worked for everybody. It should cut down on repetitive data and give a higher priority to the new play descriptions. If you have any questions you know my email. Jim at OptionInvestor.com

I am hesitant to add any additional plays this week ahead of the mutual fund year-end on Tuesday. I think we will get a chance to buy the non-energy positions lower. The portfolio list is turning a very nice shade of green with all but a handful of positions showing profits, many with very nice profits. So far the game plan for fall has worked out nicely. If it continues as planned we should have some very happy holidays. I am concerned about the potential for some general market distress over the next couple weeks and that could cause some temporary indigestion for our energy positions. I do believe it will only be temporary to grin and bear it!

Changes in Portfolio

New Energy Plays
BHP BHP Billiton

New Non-Energy Plays


Dropped Plays
CCJ Cameco Mine disaster took them out of play

New Watch List Plays Triggered


Portfolio Listing & Top Picks

New Plays

Most Recent Plays

BHP - BHP Billiton

Cameco was the disaster for the week. Cameco announced on Monday that a rock fall in one of their under construction mines had sprung a leak and filled the mine with water. Cameco said it would eventually recover the mine but they would have to begin remediation from the surface down. A seal on a watertight door failed and the entire mine was flooded. Cameco initially said it could take up to a year to resolve the leak and continue construction on the mine but later reports indicated it could take longer. This was the second time water had caused a work stoppage. This was not a producing mine but Cameco had planned on beginning production sometime in 2008. The mine is expected to produce 18 million pounds of uranium at full capacity sometime near the end of the decade. An analyst at Salman Partners said they had estimated demand would exceed supply by 25 million pounds in 2008 and with the mine delay they raised that estimate to a shortage of 32 million pounds. Uranium has risen from $42 a pound in March to $56 a pound today. Cameco still maintains it has enough production in other mines to meet its contractual obligations. Cameco owns 50% of the Cigar Lake mine, Areva 37%, Idemitsu Uranium Exploration 8% and TEPCO Resources 5%.

Cameco fell from $38 to $33 on the news but has since recovered to the mid $35 range. Losing Cigar Lake until 2009 or later is a major blow to Cameco (18 million pounds x $60 = $1,080,000,000) and uranium prices are only going to go higher. One analyst said losing Cigar Lake was like losing Saudi Arabia to the oil sector. I disagree somewhat but it is a blow, especially to Cameco. Cameco may be able to fulfill its contracts but those contracts are a old prices. New production is always sold at the higher current price.

This uranium shortfall is only going to get worse. The world is on a crash course to add nuclear plants with more than 150 on the drawing boards. In the US there are 31 plants in the application process and expected to be approved by 2008. The Energy Policy Act established some benefits and government subsidies for plants with completed applications submitted to the NRC by Dec-31st 2008. Part of these subsidies included $2 billion in standby insurance to help plants cross hurdles both financial and regulatory. The bottom line is a veritable flood of nuclear plants will begin construction later this decade. With the 12 plants in planning stages or under construction in France, 30 more in China, etc, it will take every scrap of uranium on the planet to feed them. Russia is planning at least 42 and as many as 58 plants. Several countries are already stockpiling uranium in anticipation of having plants in the future. With that additional 18 million pounds of new Cameco production out of the picture until at lease 2010 that opens the door for others in the sector. Uranium is expected to exceed $70 by the end of 2007 and I believe it will be even higher. Mine production supplies only 62% of current demand. The rest is met by destruction of nuclear weapons. The nuclear material is de-enriched, basically watered down to 1/100th of its current purity in order to be turned into fuel mild enough for reactors. That program will end by 2013. At that point the world will have to depend on mine production for future uranium needs. Basically it boils down to "if you don't own the mine now you are already out of luck." China is trying to lock up all the available supplies around the world and is accomplishing it one deposit at a time.

Because of Cameco's problems and their locked in prices for current production I am going to recommend we move out of Cameco and into BHP Billiton. BHP is an Australian miner of many different metals including uranium. BHP owns a property called the Olympic Dam mine, which is the biggest uranium deposit on the planet. It contains something in the range of 40% of all known reserves. Current contracts delivering uranium in the high $teens expire in 2008 and BHP will be in the drivers seat. Future contracts will have escalation clauses to reward BHP for its dwindling asset and rising demand. BHP produced YTD profits of more than $10 billion through last quarter and announced a $3 billion stock buyback. BHP has 10x the market cap of Cameco. Business is good and the breadth of mining for different metals should give us some diversification in addition to the uranium exposure we need.

BUY 2009 $40 LEAP Call ZPK-AH

I went with the $40 LEAP with BHP at $42.35 due to price. The $50 LEAP is $7 compared to $11.10 for the $40 strike. Subtract the $2.35 in the money and the real premium is $8.75. I am willing to pay $1.75 more for a $10 lower strike. It will pay off down the road. If you want a higher strike that is certainly your prerogative.


Play Updates

Existing Plays

The current format of the Play Updates has changed. Only the pertinent data that has changed from the prior week will be shown in an effort to concentrate more on new commentary on new plays rather than restating existing positions. Each play has a link back to either its last full commentary or its initial description.


BTU - $43.05 1.30 - Peabody Energy

BTU continued to move higher through the week but profit taking on Friday knocked -1.60 of the week's gains. Gas prices are rising and cold weather is coming making the perfect conditions for rising coal demand. No change in play.

To see the initial commentary on this position click here

Earnings: Oct 19th .53 cents, up 26%

10/22/06 Jan-2009 $50 LEAP Call ZZT-AJ @ $8.70

No insurance put at this time.


DVN - $67.39 -0.14 - Devon Energy

The massive call option buying that hit the prior week has cooled and with it the move higher by Devon which topped at $70 this week. Profit taking on Friday could be a buying opportunity ahead of their earnings on Wednesday.

To see the last full commentary on this position click here

Insurance put:
Buy Jan-2007 $55 Put DVN-MK only if DVN trades at $60 again.

Earnings schedule: Nov 1st

LEAP Position:
10/03/06 Position: 2009 $70 LEAP Call VVH-AN @ $9.00


RIG - $72.13 1.85 - Transocean Inc

RIG hit a new three month high on Wednesday at $74.75. Ensco (ESV) has already reported earnings and reported sharply higher rig rates for the quarter. If this carries over into RIG and DO we could see some decent number when RIG reports on Thursday.

Their rig report released Oct-2nd

To see the last full commentary on this position click here

Insurance put:
Buy Jan $60 PUT RIG-ML only if RIG trades at $65.

Earnings schedule: Nov 2nd

LEAP Position:
10/03/06 Position: 2009 $80 LEAP Call VOI-AP @ $12.90


TSO - $63.61 -$0.94 - Tesoro Corporation

TSO is holding the high ground ahead of its earnings on Thursday. Refining margins have risen with the pressure off crude prices and earnings should be decent. No other news and no change in play.

To see the last full commentary on this position click here

Insurance put:
Buy Feb $50 PUT TSO-NJ only if TSO trades at $54

Earnings schedule: Nov 2nd

LEAP Position:
10/04/06 Position: 2009 $70 LEAP Call ZGC-AN @ $7.70


APC - $46.53 0.88 Anadarko Petroleum

APC was among several companies (CVX, COP, FEX LP part of TLM, UltraStar and Alaska Venture Capital Group) who won exploration rights on more than 200,000 acres of land bordering the National Petroleum Reserve. 44 onshore tracts and 13 offshore tracts were awarded for about $3.2 million.

To see the last full commentary on this position click here

No change in play.

Earnings schedule: Nov 7th

LEAP Position:
9/20/06 Position: 2009 $50 LEAP Call OCP-AJ @ $6.90

Insurance put: 9/25
Position: Jan $40 PUT APC-MH @ $2.35, profit stop @ $35.00


CEO $84.56 $1.20 Cnooc Ltd

CEO closed at a new two month high on no news ahead of earnings now reported to be released on Tuesday.

To see the last full commentary on this position click here

No insurance put

Earnings schedule: Oct-31st

Position: March $90 Call CEO-CS @ $2.40 (no leaps)


SU $76.94 1.78 Suncor Energy

Steady climb after earnings were released showing profits more than doubled over the same quarter in 2005. Earnings rose to 1.48 per share from 0.57 in 2005. Suncor is on track to double its oil sands production by 2010-2012 to more than 550,000 bpd. Nothing by good news from Suncor and no change in play.

To see the last full commentary on this position click here

Earnings schedule: Oct 26th, $1.48 vs $0.57 year ago qtr

LEAP Position: 9/11/06
Position: 2009 $80 LEAP Call OYX-AP @ $14.30

Insurance put: 9/18
Position: Dec $60 Put SU-XL @ $2.10, no stop


SLB $62.81 2.70 Schlumberger

SLB rose to a new two month high at $64.68 after earnings and despite a -$2 drop from profit taking as the week ended SLB still managed to retain a nice gain. SLB nearly doubled earnings over the prior year and they should attract additional investors as money comes back to the sector.

To see the last full commentary on this position click here

Earnings schedule: Oct 20th: 81 cents vs 44 in Y.A.Q.

LEAP Position:
1/2 9/11/06 @ $8.60
1/2 9/12/06 @ $8.00
Position: 2009 $70 LEAP Call VWY-AN @ $8.30

Insurance Put: 9/18
Position: Jan $50 Put SLB-MJ @ $2.00, no stop


NBR $31.08 $0.44 Nabors Industries

New life for Nabors after earnings. Nabors posted earnings of $1.02 per share compared to 55 cents in the year-ago-qtr (YAQ). Revenue rose 40% and the company said business was booming with $1.2 billion in new long term contracts.

Link to recent presentation

To see the last full commentary on this position click here

Earnings schedule: Oct 25th, $1.02 vs 0.55 in YAQ

LEAP Position:
9/12/06 2009 $40 LEAP Call VRB-AH @ $4.50

No insurance


UPL $54.82 2.12 Ultra Petroleum

UPL continued to extend its gains ahead of its earnings on Oct-31st. A new three-month high was set on Thursday with only slight profit taking with the sector on Friday. I have heard two presentations from UPL recently (listen below) and I expect their earnings to be stellar. I guess that sets me up for a disappointment but I am very bullish on this stock.

UPL said recently that their profit margins at $4 gas were 30%, $6 gas 50% and $8 gas 100%. They have a 16-year inventory of wells to be drilled.

OGIS Investment Conference on Oct-4th.
Enercom Oil and Gas presentation

To see the last full commentary on this position click here

Earnings schedule: Oct 31st

LEAP Position:
9/12/06 Position: 2009 $60 LEAP Call OZH-AL @ $10.60

Insurance Put:
9/18 Position: JAN $40 Put UPL-MH @ $2.85, no stop


SUN $66.40 $0.82 Sunoco

SUN continued to hold its gains while we wait for earnings on Wednesday. Refiners are flat lining due to unknowns about profits during the oil crash. With the majors reporting good results I expect SUN to do well also. No news and no change in play.

To see the last full commentary on this position click here

Earnings schedule: Nov 1st

LEAP Position:
9/12/06 Position: 2009 $70 LEAP Call VUN-AN @ $13.50

Insurance Put:
Position: Jan $55 Put SUN-MK @ $2.40, no stop


PXP $42.90 0.41 Plains Exploration

PXP continued to creep slowly higher. They changed their earnings date to the 9th and the conference call is 9:AM Central on Wednesday. Investors wishing to participate in the conference call may dial 1-800-567-9836. No change in play.

Maintain $35 profit stop on Jan $40 insurance put.

OGIS Investment Conference on Oct-4th

To see the last full commentary on this position click here

Earnings schedule: Nov 9th

LEAP Position:
9/12/06 Position: 2009 $50 LEAP Call ZXL-AJ @ 7.50

Insurance Put:
9/25 Jan $40 Put PXP-MH @ $1.90


FST $32.74 $0.41 Forest Oil

FST has flat lined between $32-$34 ahead of earnings now scheduled for Nov-8th. A conference call is scheduled for Thursday, November 9, 2006, at 12:00 pm MT to discuss the release. You may access the call by dialing toll free 800.399.6298 and request the Forest Oil teleconference (ID # 9784416). A Q&A period will follow. I have heard their recent presentations and I think there will be positive news. No change in play.

Enercom conference presentation

To see the last full commentary on this position click here

Earnings schedule: Nov-8th

LEAP Position: 9/12/06
Position: 2009 $40 LEAP Call OJG-AH @ 4.50

No insurance due to cheap LEAP


XTO $46.51 $2.10 - XTO Energy

XTO had a very good week after posting earnings that rose 17%. Gas production rose 12%, NGL 19% and oil production 7% in Q3. No change in play.

OGIS conference presentation on Oct 4th
Enercom presentation

To see the last full commentary on this position click here

Earnings schedule: Oct 24th, $0.99 vs $0.85 in YAQ

LEAP Position:
9/12/06 Position: 2009 $50 LEAP Call OUO-AJ @ $6.50

Insurance Put: Feb $35 Put XTO-NG @ $1.40, no stop


VLO $53.12 $0.94 Valero Energy

Valero reports earnings on Tuesday but CEO Bill Klesse has gone on record saying their sour crude margins remain very strong. The steep drop in gasoline prices impacted everyone but Valero should have been hurt less than the others due to its sour crude capability. VLO estimates are for earnings of $2.25 to $2.35. No change in play.

To see the last full commentary on this position click here

Earnings schedule: Oct 31st

LEAP Position:
9/24/06 Position: 2009 $60 LEAP Call VHB-AL @ $7.70

Insurance Put:
Position: 9/25 Jan $45 Put VLO-MI @ $2.25, no stop


PBR - $89.01 $3.45 - Petroleo Brasileiro

PBR captured a very nice gain for the week ahead of the decision in Bolivia. Petrobras was locked in talks with Bolivia on Saturday ahead of the midnight deadline set by the government to either turn over 51% of their business or leave the country completely. Petrobras, a state owned Brazilian energy company is refusing to turn over its assets and pledges to seek compensation in international courts if no satisfactory agreement can be reached. Currently Petrobras controls 47.3% of the natural gas reserves in Bolivia. This weekend should be the final battle in this war. Total has agreed to the nationalism and signed a new contract calling for new investment of $2.1 billion in Bolivia. PBR has already invested $1.5 billion and wants it back if Bolivia kicks them out. This is the only negative to the PBR play.

To see the last full commentary on this position click here

Earnings schedule: Nov 10th

LEAP Position:
9/08/06 Position: 2009 $100 LEAP Call VDW-AT @ $14.90

Insurance put:
9/11 January $70 PBR-MN @ $1.80, no stop


DO - $70.93 $3.59 - Diamond Offshore

DO missed analyst estimates by -6 cents but profits doubled as demand for the company's equipment and services soared. Profits rose to $1.19 from 0.60. Revenue jumped 66% to $514.5 million from $310 million. Day rates continued to rise and long term contracts were increasing.

To see the last full commentary on this position click here

Earnings schedule: Oct 27th. $1.19 vs $0.60 in YAQ

LEAP Position:
8/29/06 Position: 2009 $80 LEAP Call VCT-AP @ 14.20
Cost reduction: Oct $70 Put profit -3.15, cost now $11.05

Insurance Put:
Position: 10/08 Dec $60 Put DO-XL @ $2.40, no stop

Position closed:
10/03 October $70 put DO-VN @ $1.65, exit @ $4.80, 3.15


CSX - $36.46 $0.48 - CSX Corp

CSX finally rested after setting a new all time high on Wednesday at $38.30. It was time for a rest and I have no complaints. No change in play. No other news, no change in play.

To see the last full commentary on this position click here

Earnings schedule: Oct 17th, 54 cents, 50%

LEAP Position:
9/03/06 Position: 2009 $35 LEAP Call OBC-AG @ $4.90

Insurance put:
9/11 November $30 Put CSX-WF @ $1.40, stop $25


ATPG - $43.35 $2.34 - ATP Oil and Gas Corp ** No Stop **

ATP continued to extend its gains and posted a new 5-month high on Friday. No news and no earnings date yet. I have emailed the company for a date but nothing yet. Based on prior earnings dates it should be next week. No change in play.

To see the last full commentary on this position click here

OGIS Investment Conference on Oct 5th.

Earnings schedule: N/A

LEAP Position:
8/20/06 Position: 2009 $40 LEAP Call VCL-AH @ $11.70

Insurance put:
9/06 Position Dec $35 PUT HKU-XG @ $1.50, stop at $30


PTR - $110.70 $0.87 - Petrochina

PTR continues to hold its gains but has failed to retest the $115 mark from August. PTR announced on Friday oil discoveries in three new wells in China's Junggar basin. Initial gas output in one well was 510,000 cubic meters per day and 150,000 CM in another. This was the highest output reported in the basin. No change in play.

To see the last full commentary on this position click here

Current recommendation: Buy under $105

Earnings: August 24th, $10.1 billion, 29%

LEAP Position:
5/14/06 Position: 2008 $120 LEAP Call LJC-AD @ $16.20
Cost adjustment: Close short Dec $115 call 1.30 = $17.50
Cost adjustment: Close long July $90 puts 3.00 = $20.50
Cost adjustment: Close long Sept $110 put -2.60 = $17.90

Insurance put: (9/11)
Position: December $100 Put PTR-XT @ $2.20, stop $90

Insurance put: (8/13)
Position closed:
Sept $110 Put PTR-UB @ $2.40, stop @ $106 @ $5.00, 2.60

Insurance combo: Closed
Short: Dec $115 Call PTR-LC @ $3.20, 6/13, exit $4.50, -1.30
Long: (2) July $90 Puts PTR-SR @ $3.70, 6/13, exit $0.70, -3.00

Insurance puts: (Closed 6/7)
Closed: June $105 PUT PTR-RA, @ $4.20 (5/22), exit 6/7 @ $4.30


CCJ - $35.15 -$2.98 - Cameco ** Dropped **

CCJ rebounded slightly from its mine disaster sell off but not enough to rescue us from a loss of -$4.20 on the position. See the BHP play description for an update on the story.

To see the last full commentary on this position click here

Current recommendation: Buy under $35

Earnings schedule: Nov 1st

LEAP Position: 2/25/2006
Position: 2008 $40 LEAP LTA-AH @ $9.00, exit $4.80, 10/30, -4.20

No insurance put

Non Energy Positions

CAT - $61.30 2.30 - Caterpillar

Everything was going so well with CAT and a nice rebound was underway until the Ingersoll-Rand disaster on Friday. I believe CAT will recover quickly and this was only a temporary setback.

To see the initial commentary on this position click here

10/22/06 JAN-2009 $70 LEAP Call VKT-AN @ $7.20

No insurance due to strong support at $57.


TEX - $51.22 0.92 - Terex Corp

Like CAT Terex was rebounding nicely and even set a new all time high of $56.54 on Thursday before the IR earnings miss knocked it back for a -$3 loss on Friday. Earnings on Wednesday nearly doubled to 98 cents from 51 cents in the year ago quarter. Revenue rose to $1.9 billion from $1.49 billion. Margins increased by 3.1% and TEX expects them to go higher. Return on invested capital rose to 33% for the 12 months ended on Sept-30th. Full year revenues are expected to rise to $7.5 billion with profits to be in the range of $3.70 after -22 cents in charges. Earnings per share in 2005 were $1.90. Order backlogs doubled to more than $2.3 billion.

To see the initial commentary on this position click here:

Earnings: Oct 25th, $0.98 vs $0.51 in YAQ

10/23/06 Jan-2009 $60 LEAP VXQ-AL @ $10.90

Insurance Put:
10/23/06 Jan-$45 PUT TEX-MI only is TEX trades at $48.


DHI - $23.75 $0.52 - DR Horton

Another week of three steps forward, two steps back. DHI spiked to $24.60 on Thursday but imploded on the weak GDP due to housing. Earnings still two weeks away with strong resistance at $25. Initial support at $23, strong support at $20. No change in play.

To see the last full commentary on this position click here

Earnings schedule: Nov 14th

LEAP Position:
9/24/06 Position: 2009 $25 LEAP Call VEI-AE @ $5.10

Leaps Trader Watch List

Dropped Entries
CHK Chesapeke Energy Out of range
ECA Encana Out of range

New Watch List Entries


Current Watch List

MRO - Marathon Oil

Marathon Oil Corporation (Marathon) is engaged in the exploration and production of crude oil and natural gas on a worldwide basis. The Company operates in three business segments: Exploration and Production (E&P), Refining, Marketing and Transportation (RM&T) and Integrated Gas (IG). The E&P segment explores for and produces crude oil and natural gas on a worldwide basis. The RM&T segment refines, markets and transports crude oil and petroleum products, primarily in the Midwest, the upper Great Plains and southeastern United States. The IG segment markets and transports natural gas and products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol on a worldwide basis. On June 30, 2005, the Company acquired the remaining 38% ownership interest in Marathon Ashland Petroleum LLC (MAP). As a result of the acquisition, MAP became a wholly owned subsidiary of Marathon and was subsequently renamed as Marathon Petroleum Company LLC (MPC).

Breakdown target: $76

Buy 2009 $90 LEAP Call VXM-AR


HES - Hess Corporation (Formerly Amerada Hess (AHC))

Hess Corporation explores for, develops, produces, purchases, transports, and sells crude oil and natural gas. These exploration and production activities take place in the United States, United Kingdom, Norway, Denmark, Russia, Equatorial Guinea, Algeria, Gabon, Libya, Indonesia, Thailand, Azerbaijan, Malaysia and other countries. The Company also manufactures, purchases, trades and markets refined petroleum and other energy products. It owns 50% of a refinery joint venture in the United States Virgin Islands, and another refining facility, terminals and retail gasoline stations located on the East Coast of the United States. As of December 31, 2005, the Company had 692 million barrels of proved crude oil and natural gas liquids reserves.

Breakdown target $38

Buy 2009 $40 LEAP Call VHS-AJ


MDR - McDermott Intl

McDermott International, Inc. (MII) is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. and its consolidated subsidiaries; McDermott Incorporated (MI) and its consolidated subsidiaries; Babcock & Wilcox Investment Company (BWICO), a subsidiary of MI; BWX Technologies, Inc., a subsidiary of BWICO, and its consolidated subsidiaries, and The Babcock & Wilcox Company, a subsidiary of BWICO, and its consolidated subsidiaries. Through these subsidiaries, MII operates as a global energy services company with three business segments.

Breakdown target $40 *** Change ***

Buy 2009 $50 LEAP OYZ-AJ


PCU - Southern Copper

Southern Copper Corporation is an integrated producer of copper, molybdenum, zinc and silver. All of the Company's mining, smelting and refining facilities are located in Peru and in Mexico, and it conducts exploration activities in those countries and Chile. With the acquisition of Minera Mexico in April 2005, the Company focuses on three segments: Peruvian operations, which include the Toquepala and Cuajone mine complexes, and the smelting and refining plants, industrial railroad and port facilities, which service both facilities; Mexican open-pit operations, which combined two units of Minera Mexico, Mexcobre and Mexcananea that includes La Caridad and Cananea mine complexes, and smelting and refining plants and support facilities servicing both complexes, and Mexican underground operations known as IMMSA unit, which includes five underground mines that produce zinc, lead, copper, silver and gold, a coal and coke mine.

Breakdown trigger: $48

Buy JUNE $50 Call PCU-FJ (no leaps) *** Change ***


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