Option Investor

Weekly Newsletter, Saturday, 11/18/2006

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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

Expiration Strikes Again

December futures prices fell off a cliff on Thursday to hit $54.86 and well below last week's high of $61.35. This massive -6.49 drop in only a week, -4.44 in only 48 hours, was due to options and futures expiration with the December contract expiring on Friday. Traders holding December contracts and hoping to see the normal Q4 bounce were forced to dump them when that bounce did not appear. The January contract dropped -$3 but rebounded to close at $58.90 and +$3 over the December contract close at $55.90. The lack of a rebound from the three-month decline has confounded traders who continue to buy the dip only to have it dip lower. The OPEC production cuts and continued supply disruptions have given traders reason for hope but that hope has been crushed. Eventually a Q4 rebound will appear but for holders of the December contract their time ran out. The January contract did decline with the December on Thursday but managed to post a +26 cent gain on Friday. Last month there was a similar rush to the exits and when the new contract began trading as the front month on Monday Oct 23rd it was also crushed as shorts rolled positions forward. It will be interesting to see if the same trend repeats on Monday given the +$3 difference in prices at Friday's close. Regardless of the price action on Monday or the action last week the price of energy stocks has remained firm. There was some volatility on Thursday but most rebounded on Friday. The long-term outlook is still bullish and stock traders are buying the dips.

There was a report released by the Cambridge Energy Research Associates (CERA) titled, "Why the "Peak Oil" Theory Falls Down Myths, Legends and the Future of Oil Resources." This report received much attention in the press and was taken as gospel by many. Unfortunately it is total crap. CERA is even more outrageous than the IEA and EIA. CERA charges $1000 for their reports and would have trouble finding buyers unless they continued to wage verbal war with the Peak Oil crowd. Countries and companies looking for a positive justification to continue business as usual and not be forced to face the coming end of the oil age can purchase this report and sleep comfortable at night. When the bad news finally arrives they can produce the CERA report as justification for their position.

Basically CERA projects that there are 3.74 trillion barrels left or roughly a 122-year supply. Unfortunately 2 trillion of those barrels are still undiscovered according to CERA. They also added to the total things like bio diesel, shale oil, gas to liquid and coal to liquid components. It does not make any sense to claim we are not running out of lemons because we have oranges, apples and watermelons to fill the gap. We are either running out of a finite resource or we are not. Changing what components you consider as part of the resource only confuses those who are not smart enough to read between the lines. It does guarantee a snappy headline and more sales of your $1000 report.

CERA is so grossly optimistic is should be criminal. For instance they project a gain of +800,000 bpd by 2013 from the new discovery in the lower tertiary zone in the deepwater Gulf of Mexico. There has only been one test of the Jack wells, which tested at 6,000 bpd. The oil companies themselves claim the technological challenges from drilling over 30,000 feet under 10,000 feet of water may make eventual production commercially unfeasible. There are no pipelines even remotely close and pumping oil over long distances that deep underwater is not practical. The oil itself is heavy crude, which complicates the production problems and makes the oil less desirable. To eventually produce this oil will require investments of billions and hundreds of new technological developments. For CERA to suggest that we will see 800,000 bpd by 2013 is pure smoke. This is similar to the problem in the Falkland Islands. The area has the second best source rocks on the planet. Oil was found, test wells were drilled and the project eventually scrapped as being to difficult and expensive to produce and too far from land to pipe. CERA also claims the Artic has plenty of oil. Unfortunately there is no route to market. You can't ship it by tanker or create pipelines in sub zero temperatures across hundreds of miles of ice. Building a railroad would be a 20 year project and probably technically impossible. There may be oil there but you simply cannot get it to market in quantity. That makes it useless as a component in any Peak Oil conversation. Any oil that cannot be produced in quantity by 2015 is not relative. It may eventually be produced when prices are $200 to $300 per bbl but not in any volume and not over the next decade.

To recap the Peak Oil scenario there are only a couple facts needed. Demand is continuing to rise with the average daily 2006 likely to come in somewhere in the 84 mbpd range. Most forecasters use demand growth of 1.2% to 2% per year. China and India are prime drivers but the rest of the globe is still contributing to to rising demand. Current production capacity is currently seen to be about 86.5 mbpd once Saudi brings their new 1.2 mbpd online in 2007. Call it 85 mbpd today. The depletion rate on current fields is as high as 10% on some and as low as 4% on others. Using an average of 5% that means we have to add +4,250,000 new barrels per day of new production every year just to maintain current production. With demand rising over 1-mbpd each year and depletion subtracting 4-mbpd that means we need to add 50-mbpd of new production over the next ten years just to stay even. Saudi Arabia claims to have 25% of the total reserves on the planet or 267 billion bbls. Their maximum production capacity is currently 8-mbpd. Adding +50 mbpd of production over the next 10 years would be the equivalent of discovering more than 6 new Saudi Arabia sized fields, drilling 40,000 new wells and constructing more than 20,000 miles of pipeline. Since it takes 5-7 years to begin production of a major new field this means that those 6 new super giant fields will have to be discovered over the next 3 years. Since no super giants have been found since 1961 the odds are exceedingly slim this fairy tale will come to pass.

Peak Oil is simple math. The world consumes 31 billion barrels of oil each year. Over the last two decades discoveries have averaged less than 9 billion bbls per year with recent years dipping as low as 6 bb. Proven reserves are somewhere in the 850 billion range, 1,000 bb if you allow for the erroneous reserves reported by OPEC members to justify their higher production quotas after 1985. We have already used one-trillion bbls over the last 150 years. At the current rate of use our current proven reserves would run dry in only 32 years. That date is not our problem. The date we have to worry about is the date production begins to decline. From that point on oil prices will only move higher, gasoline prices will skyrocket and we will no longer be debating the topic of Peak Oil. The topic then will change to global resource wars. Countries will try and take what they need to survive. They will go to war to protect what they have. Since the US consumes 26% of the worlds oil we have the most to lose and the most to protect. Permanent global recession will arrive as the oil age begins its decline. Oil will not run out for 100 years or more. Only cheap oil will disappear and with it the energy consumption lifestyle we all enjoy.

It is not a question of whether Peak Oil will arrive. It is only a question of when. Some claim it is here now, others claim 2007-2009. Still others feel it will be between 2010-2015. CERA claims it will not arrive until 2040. This target assumes the globe shifts to bio diesel, electric cars, solar heating and another two trillion bbls of oil are discovered over the next 20 years. That would be equal to the amount of oil discovered since oil exploration began. You decide which future is likely to come to pass. I already know where I stand.

We were triggered on the PCU entry on the watch list and right at support. I am moving Marathon from the watch list to an active play after it rebounded +$2 on Friday from the lows created from the crude expiration dip. We are not likely to get our entry point and it is showing strong support. I am writing on the road this weekend and the play descriptions will be short. I am sure you already know these stocks so little direction should be needed.

Chart of December Crude - Daily

January Crude Oil - 30 min

December Gas Futures Chart - 30 min


Changes in Portfolio

New Non-Energy Plays


New Energy Plays


Marathon Oil

Dropped Plays


New Watch List Plays Triggered


Southern Copper

Portfolio Listing & Top Picks

New Plays

Most Recent Plays

MRO - Marathon Oil

Marathon is an integrated oil company involved in all areas of the oil process. They are the 4th largest integrated oil in the US. Last week they announced they were joining with Andersons to build an ethanol plant in Ohio. Personally I think this adds nothing to the price of the stock and it could have been a big factor in Thursday's -4.68 decline. However, traders bought the dip with aggression and MRO rebounded +2.12 on Friday. The week before Marathon announced it was spending $3.2 billion to upgrade its Garyville Louisiana refinery from 245,000 bpd to 425,000 bpd. Marathon is paying high prices to upgrade its plants to process heavy sour crude which trades at a substantial discount to light sweet crude. Marathon also said it was soliciting a partnership with a tar sand operator to refine that specialty crude.

Earnings were the end of October and they shot up to $4.30 per share from $2.16 in the comparison quarter. MRO produces about 365,000 bpd of oil from its global exploration efforts. Marathon is a strong company that has limited exposure to geopolitical events. There is no special event that triggered this play just solid support and the potential for a breakout over $90 on the next bounce in oil.

Company info:

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).

Buy 2009 $100 LEAP Call VXM-AT

Insurance put: None

New Watch List Plays Triggered

PCU - Southern Copper

Southern Copper is a strong producer but recently the rising stockpiles of copper has pushed their price back to strong support at $50. This is a play on growing global economy but the slight hiccup over the last quarter has produced a short term surplus of copper. I believe PCU will weather this dip and return to the new highs it was making just 7 days ago. This is either a picture perfect entry at $51 or a short pause before a major breakdown. We won't know for sure until next month.

I am putting an insurance put on this play but only if PCU trades at $49.50.

Company Info:

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 triggered at $51

JUNE $55 Call PCU-FK @ $3.80
(no leaps)

Insurance Put:
PCU-XW Dec $47.50 put only if PCU trades at $49.50


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.

HES - $46.00 + 1.00 - Hess Corporation (Formerly (AHC))

Hess announced last week that it joined forces with BHP and Repsol to buy the Genghis Khan site from Anadarko for $1.35 billion. The development in blocks 652 and 608 in the Gulf has estimated reserves of 65 million to 170 million BOE. No complaints, no change in play. BHP will own 44% while Hess and Repsol will each own 28%. Hess said it was paying $378 million for its interest. The three companies already have a similar ownership in the Shenzi project in the same geologic formation. HES continues to move higher setting a new two month high at $47 on Wednesday. HES rebounded from the Thursday dip with a +73 cent gain on Friday.

To see the initial commentary on this position click here

11/05/06 2009 $50 LEAP Call VHS-AJ @ $6.80

No insurance due to cheap LEAP, strong support and positive trend.


BHP - $40.21 -2.08 - BHP Billiton

BHP was hammered on the drop in gold, copper and energy prices. It was the perfect storm for BHP and the ship sank. Fortunately we have a good insurance put position. No news and no change in play.

To see the initial commentary on this position click here

10/29/06 2009 $40 LEAP Call ZPK-AH @ $11.10

Insurance Put:
11/12/06 Feb $40 Put BHP-NH @ $1.50


BTU - $42.00 +0.54 - Peabody Energy

BTU is still stuck in a rut between 40.50-42.50 and can't seem to find a trend. It was announced on Wednesday that Peabody would replace HCA in the S&P-500 on some future date. This should help provide a floor over the next couple of weeks. 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 - $69.96 -0.14 - Devon Energy

Devon announced it was shifting to horizontal wells in the Cotton Valley of east Texas and the return on investment has been very good. So good that a dozen other companies are rushing to duplicate their drilling method. XTO has already completed its first horizontal well in the play. They doubled the cost of the well from $2.5 million to $5 million but now expected to recover 10 BCF per well rather than the 2.5-3.0 BCF from vertical wells. Devon said they were spending three times as much per well but were seeing five times the recovery of a normal vertical well. Devon also said it was selling its assets in Egypt to concentrate on core exploration efforts. No price was given. No complaints and no change in play.

To see the last full commentary on this position click here

Insurance put:
Buy Apr-2007 $60 Put DVN-PL only if DVN trades at $64 again.

Earnings: Nov 1st, $1.66, beat by +14 cents

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


RIG - $73.39 -2.28 - Transocean Inc

RIG hit a new three-month high last week at $78.50. It has been all down hill from there. The drop in oil prices took the wind out of drillers sails. Carl Icahn also reported selling his interest in RIG as well as six other companies. Despite the drop the trend is still intact. No change in play.

Their rig report released Oct-31st: http://tinyurl.com/vkwuv

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: Nov 2nd, 83 cents, 12 cent beat

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


TSO - $66.06 +0.66 - Tesoro Corporation

TSO finally broke over resistance at $66 but the drop in oil prices brought it back to that level now functioning as support. TSO was one of the better performing refiners for the week. No news and no change in play.

TTo see the last full commentary on this position click here

Insurance put:
Buy Feb $55 PUT TSO-NK only if TSO trades at $59

Earnings: Nov 2nd, $3.92, 66 cent beat

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


APC - $46.83 -0.42 Anadarko Petroleum

APC said it expected to sign a new contract with Mozambique for exploration rights on a 60,000 square kilometer parcel. This is a proven sector but due to the past problems in Mozambique it has had little exploration activity. APC is very positive on the acreage and the prospects. No change in play.

To see the last full commentary on this position click here

No change in play.

Earnings: Nov 7th, +$1.75 vs +$1.12

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 $85.27 -2.15 Cnooc Ltd

CEO gave back about half of last week's gains but considering the drop in oil prices this was a minimal retracement. No change in play.

To see the last full commentary on this position click here

No insurance put

Earnings: Oct-31st, $2.33B rev, +25%, no EPS given

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


SU $75.62 -3.59 - Suncor Energy

Suncor received approval for the next step in upgrading its oil sands output. The approvals were conditional with stipulations, They also announced a $5.3 billion capex budget for 2007. The combination of events produced a drag as traders took profits from the two-month high the prior week. No change in play.

TTo see the last full commentary on this position click here

Earnings: 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 $63.32 +0.02 Schlumberger

SLB traded in a $4 range for the week but ended up flat for the week. We are just waiting for a rally in oil to appear. There was no news and no change in play.

To see the last full commentary on this position click here

Earnings: 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 $30.56 -1.36 Nabors Industries

No news, no change in play. It is almost as if Nabors does not exist. They are staying out of the news and in the field doing their job quietly.

Link to recent presentation: http://tinyurl.com/o5jmy

To see the last full commentary on this position click here

Earnings: 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 $50.18 -1.02 - Ultra Petroleum

UPL is still suffering from a three week post earnings decline that has knocked -$6 off the price. Gas prices are still holding at $8 and any breakout should power UPL higher. No news and no change in play.

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. http://tinyurl.com/y6xsq3
Enercom Oil and Gas presentation: http://tinyurl.com/kn5cb

To see the last full commentary on this position click here

Earnings: Oct 31st, +33 cents

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 $64.72 -0.61 - Sunoco

SUN continues to vacillate between $64-$67 on no news. If you are a day trader this stock has been perfect with $3 swings nearly every other day. No change in play.

To see the last full commentary on this position click here

Earnings: Nov 1st, $2.76 vs $2.39

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 $43.68 +0.89 - Plains Exploration

PXP was all over the chart early in the week but ended with a nice rebound and a gain. No news after announcing earnings the prior week. No change in play.

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

OGIS Investment Conference on Oct-4th: http://tinyurl.com/y7vn2w

To see the last full commentary on this position click here

Earnings: Nov 9th, +91 cents vs +37 cents

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 $33.62 +0.29 - Forest Oil

FST is still fighting resistance at $35 but the long term trend is creeping higher. I still expect $35 to break and a strong trend begin. No change in play.

Enercom conference presentation: http://tinyurl.com/ggzmv

To see the last full commentary on this position click here

Earnings: Nov-8th, +1.21 vs +0.055

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

No insurance due to cheap LEAP


XTO $47.18 +0.90 - XTO Energy

XXTO is holding at the top of its range just under resistance at $49. See the DVN play for news about their Cotton Valley drilling results. No change in play.

OGIS conference presentation on Oct 4th: http://tinyurl.com/v6ram
Enercom presentation: http://tinyurl.com/qorbr

To see the last full commentary on this position click here

Earnings: 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 $52.86 +$.10 - Valero Energy

Valero had nothing but good press for the week but resistance at $55 is holding. After the bell on Friday Valero announced it was selling its remaining 51.7% of its holdings in Valero GP Holdings and would retain only 7.7% unless the offering was over subscribed. There was no change in the price of VLO after the announcement.

To see the last full commentary on this position click here

Earnings: Oct 31st, +$2.42 vs $2.30

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 - $89.30 -3.58 - Petroleo Brasileiro

PBR suffered a drop due to guilt by association after the Brazilian exchange fell on a drop in commodity prices and profit taking. PBR was up +7.7% for the month going into the week. The Brazilian exchange suffered a substantial drop and Petrobras is a major component of that index. The long-term trend is still intact. Consider this a buying opportunity. No change in the play.

To see the last full commentary on this position click here

Earnings: Nov 10th, +29%

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 - $74.63 -0.63 - Diamond Offshore

DO gave back -63 cents of the +$4 it gained in the prior week. I would take that trade every week. No news and no change in play.

To see the last full commentary on this position click here

Earnings: 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:
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 - $36.38 -0.43 - CSX Corp

CSX will be added to the MCSI 300 US Large Cap Index as of Nov-30th according to MCSI Barra. CSX said its volume growth for Q4 would be +1% compared to +2% in Q3. Most shippers have warned that Q4 volumes would decline due to a weakening in the US economy. CSX said their long term annual growth forecast of 2-3% through 2010 remained intact. Annual profit growth of +12-13% through 2010 was also affirmed. No complaints here and 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
11/17 Cost update - expired Nov $30 put +1.40 = $6.30

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


ATPG - $45.49 +1.25 - ATP Oil and Gas Corp

ATP continued to move higher setting a new 6-month high. No news and no complaints! With a market cap of only $1.3B they could be a prime takeover candidate. No change in play.

To see the last full commentary on this position click here

OGIS Investment Conference on Oct 5th. http://tinyurl.com/y5jod2

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 - $114.65 -0.89 - Petrochina

PTR gave up some ground after gaining +$8 over the last 3 weeks. Resistance at $117 was hit on Thursday just as the bottom fell out of the December oil contract. That combination knocked -$4 off the price but PTR quickly recovered. This is another buying opportunity in my opinion. No change in play.

I caught a quote from the President of a Petrochina division in an unrelated article earlier this week. They are developing an area called the Tarim River Basin. "The Tarim River Basin [in Xinjiang] alone is expected to produce about 750 million barrels of oil between 2006 and 2010," says Sun Longde, president of the PetroChina Tarim. If this is true then China's demand growth will be lessened from internal production. That equates to something around 500,000 bpd at full production. It also means Petrochina will see a significant increase in production.

To see the last full commentary on this position click here

Current recommendation: Buy under $110

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

Non Energy Positions

CAT - $60.94 +1.34 - Caterpillar ** Stop loss $58 **

CAT retested the resistance at $62 and continues to languish in the $59-$62 channel. They announced they bought out their joint venture partner in India and renamed the Hindustan PowerPlus Ltd venture Caterpillar Power India Private Ltd. India is one of their fastest growing regions. No change in play as we await some good news to restart their trend upward.

To see the initial commentary on this position click here

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

Insurance Put: none


TEX - $55.92 +3.33 - Terex Corp

A big week for TEX as it set a new all time high at $57. TEX also scored a new COO, Tom Riordan, who resigned from SPX to take on the new position at TEX. No change in play.

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 - $25.10 +2.65 - DR Horton

Surprise! DHI beat the street with earnings of +88 cents when analysts were only expecting 69 cents. They did confirm that future sales would be weak just like everyone else but the stock jumped nearly +20% from last week's lows. While this jump may bleed away eventually the housing market will find a bottom that sticks so no change in play.

To see the last full commentary on this position click here

Earnings: Nov 14th, 88 cents vs analysts est of 69 cents

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

Leaps Trader Watch List

Dropped Entries
MRO Moved to active play
PCU Hit trigger, moved to active play

New Watch List Entries
FTSE/Xinhua China 25 Index Fund

Current Watch List

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 $43

Buy 2009 $50 LEAP OYZ-AJ


HPQ - Hewlett Packard

Hewlett-Packard Company (HP) is a provider of products, technologies, solutions and services to individual consumers, small and medium-sized businesses and large enterprises. Its offerings span enterprise storage and servers; multi-vendor services, including technology support and maintenance; consulting and integration, and managed services; personal computing and other access devices, and imaging and printing-related products and services. During the fiscal year ended October 31, 2005, HP's operations were organized into seven business segments: Enterprise Storage and Servers, HP Services, Software, the Personal Systems Group, the Imaging and Printing Group, HP Financial Services and Corporate Investments.

Breakout trigger: removed ** Changed **
Breakdown trigger: $35.50 ** Changed **

Buy 2009 $40 LEAP Call VHP-AH ** Changed **


FXI - FTSE/Xinhua China 25 Index Fund

The iShares FTSE/Xinhua China 25 Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE/Xinhua China 25 Index.

Component list: http://tinyurl.com/y9fv6a

This iShare focuses on the largest companies in China (58% of it positions) and Hong Kong (42%). These are the most liquid companies in these markets. With Asia growing by leaps and bounds the FXI generated a +40% return in 2005 without using options. We hope to do better using LEAPs.

Breakout target: $94.50
Breakdown target: $91.25

2009 $100 LEAP Call VHF-AT


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