Option Investor
Newsletter

Weekly Newsletter, Saturday, 12/09/2006

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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

A Valiant Effort

For six days the January crude contract held the high ground between $62 and $63. On Thursday night it appeared a breakout was imminent with a strong volume surge pushing it to $63.50. Unfortunately the rally could not find any traction and a late afternoon sell off knocked us back to $62 once again. It was a valiant effort holding the high ground all week and returning to $63.50 exactly as id did last Friday. It just wasn't enough.

There were many factors, which could have caused the decline but I believe it was just profit taking with barely a week left on the January contract. I mentioned last week I expected $63.50 to be broken but probably not this week so nobody should have been disappointed. I doubt it will happen next week either.

The noise out of OPEC is still leaning towards another production cut when they meet on the 14th, Wednesday night our time. How much is still a topic of debate and not everyone has boarded the production cut bus. The Saudi ambassador said on Thursday that prices were already imminently fair. I believe that was their attempt to be politically correct in the eyes of the US not because they really wanted less money. Saudi is the swing producer and no OPEC position will work unless Saudi agrees to it.

Late this week there was new violence in Nigeria but it had no immediate on production. The facility exports 200,000 bpd but while one person was killed and several others kidnapped there was no damage to production.

Warmer weather is predicted for next week so natural gas prices should soften although the inventory levels should decline further as a result of last week's cold spell. Falling gas prices will pressure heating oil and crude. Once the January contract ceases trading on the 19th we should be in the high demand cycle where overall weather is colder and shoppers are burning gasoline hitting all the stores and holiday parties.

I wrote about Chesapeake Energy in the Option Investor commentary but I know some readers do not get both newsletters. CHK issued 30 million shares in a new offering that was snapped up by Deutsche Bank (DB) for $31.85 giving CHK nearly $1 billion in proceeds, which they plan on using to pay down debt under its revolving credit facility. Lehman Brothers analyst Jeffery Robertson maintained an overweight rating saying CHK's 2008 production guidance indicates a +12% year over year increase. Armed with a strong balance sheet he believes CHK will fund an aggressive capital program aimed at growing production by +16% and maintain the ability to capitalize on future acquisition opportunities. He also said management has indicated they are planning on turning a large prospect inventory into proven reserves. CHK currently has 8.4 TCF of proven reserves and 16.4 TCF of probable reserves. Once they turn those probable reserves into proven the valuation of the company will rocket higher. That would turn into some $200 billion or more of valuation once proven and CHK only has a $14B market cap today.

I would be a buyer of CHK today at the $32.15 level but only if you have a long investment horizon. CHK has spent the last five quarters consolidating a three year move from fledging company in 2000 at $3 with only 1.2 TCF of reserves into the 3rd largest US independent today. They moved from $5 in August 2002 to $40 in October 2005. Since then they have been dormant trading in a range between $28-$34. Eventually they will breakout once they start being valued for their true reserves. Their current proven reserves are worth something north of $60 billion making them a strong takeover target for one of the majors. If somebody does make an offer you can bet it will be huge given their 25 TCF of Proved and Probable reserves. LEAPs are cheap and even more so when you consider their upside. Even though we have a full portfolio I don't think we should pass up adding CHK on this dip. CHK has their own meteorologists and they are predicting a colder winter than normal which could impact gas prices in January. Since most weathermen are predicting a warmer winter based on the El Nino patterns it will be interesting to see how it plays out.

The CEO from Sempra Energy was on TV this week and he had some interesting things to say about gas. They are building an LNG terminal in Mexico just south of California and although it will not be finished for a couple years they are already completely sold out of capacity for the next 20 years. That is the same story for other LNG builders. The majors know that production is already declining in North America and are planning decades in advance to secure their gas from overseas. How secure those overseas supplies will be is an entirely different question. Sempra is also building the longest pipeline in America in decades from Colorado to the East coast for an obscene amount of money. It is also already completely contracted for years in advance as drillers in the Rockies long for the high priced eastern market. I know most readers don't believe me but natural gas is going to be a real problem right along with oil in the not too distant future.

Sempra (SRE) has a nice chart but only pays a 2% dividend. If you are looking for a safe dividend play now that Canada has decided to tax Canadian trusts then I would look at Kinder Morgan (KMP) with a 6.7% dividend.

The rest of the year is probably going to be uneventful once the OPEC meeting passes. It will boil down to cold fronts and gas inventories and whatever real production cut OPEC actually makes and then sticks with it.

I am constantly asked for the top 5 recommendations from those on a limited budget. Unfortunately those change frequently on a short-term basis depending on the whims of the market. Long term I believe everyone should have a core portfolio consisting of a driller, service company, independent producers, international exploration and refiners. You can double up on those sectors you like, especially on the international explorers. I think having PTR, PBR and SNP broadens your exposure and reduces your risk. Valero, although not a strong performer this quarter is the leading US refiner with sour crude capability. Marathon and Devon are large independent E&P companies that make great sense to own. The majors like XOM, BP and COP have problems that make me want to avoid them. MRO an DVN fill that gap. Diamond and Transocean are bookends in the offshore drilling sector where 80% of the new oil will be found. Schlumberger is the premier service company. I could keep going but before long you won't be looking at just five but like me I keep shoehorning in one more candidate. Just make sure you are diversified within the energy sector. Don't have just drillers or just refiners. One sub sector will always be hot.

Reuters had an article this week suggesting the drillers are due for some consolidation in 2007. Norwegian driller SeaDrill has said they are interested in growing into a world class drilling company and A.G. Edwards thinks they have their sights set on a US company. SeaDrill has been on an acquisition binge and already reached the ranking of sixth in the world. This is remarkable since the company was only founded in May 2005. However, the man behind SeaDrill, John Fredriksen, has the money and knowledge to grow larger. He built tanker company Frontline (FRO) into a leading global carrier. Bear Stearns analyst Robin Shoemaker reported recently that Houston was crawling with private equity firms looking to make deals. Driller day rates are still rising and contracts are being signed for 2009 and later. Money is flowing but drillers are being valued at 2006 values as though the peak had arrived. According to Bear Stearns the most talked about targets for acquisition include GlobalSanteFe (GSF), Noble Corp (NE), Diamond Offshore (DO) and Ensco International (ESV). Merrill Lynch expects a +15% rise in the sector when the first transaction is announced. Competition between SeaDrill and the LBO players should guarantee a premium price for any acquisition.

The majors are starting to release their budgets for 2007 and beyond. Chevron announced a +20% increase in their 2007 budget saying it intends to step up exploration efforts. Chevron is at least going to try and find more oil. Conoco said their budget would be lower in 2007 due mostly to capital spending in their Lukeoil investment in 2006. However, Conoco admits the 2007 budget will not be enough to sustain its current production levels. Looks like trouble on the horizon. APC meets with analysts next week and should release their budget then. All eyes are also waiting for Exxon and Shell to see what they are going to spend.

Congressional Republicans pulled the offshore drilling bill from floor action on Tuesday after it became clear they did not have enough votes to pass it. Two thirds would be required under the existing rules for that vote. The bill would open 8.3 million acres in the Gulf that is now off limits to drilling. It would also funnel royalties of 37.5% from all production to the gulf coast states with Louisiana receiving about half the money. The bill was expected to be brought back to the floor in a manner that required only a majority vote but timing was still in doubt with the lame duck session rapidly expiring. The area in question is thought to contain 1.3 billion bbls of oil and 6 TCF of gas.

China kept outside energy companies waiting all week before releasing new rules for entry into China's markets. When those rules were released there was little for foreign companies to cheer about. China maintains tight controls on commerce and does not want outsiders breaking up the monopoly Petrochina and Sinopec have on the energy business. Between them they control more than half of the more than 80,000 gas stations and nearly all of the 7 mbpd of oil used in the country. For some insight into the process and limitations follow these links:

http://tinyurl.com/y9pcy8
http://tinyurl.com/yaajrl

You will notice very few winners this week but given the outstanding gains in the prior week we were due for some profit taking. Fortunately it was light and left us near multi-month highs in most cases. Of course I am not complaining about PBR +4.32, TEX +3.94, CAT +2.21 and FXI +2.70.

Jim Brown


January Crude Oil - Daily

February Crude Chart - 30 Min

December Gas Futures Chart - Daily

 


Changes in Portfolio

New Energy Plays
CHK Chesapeake Energy

New Non-Energy Plays

None


Dropped Plays

None


New Watch List Plays Triggered
THE Todco

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

CHK $32.08 - Chesapeake Energy

See commentary for play description.

Company Info:

Chesapeake Energy Corporation is the third largest independent producer of natural gas in the U.S. We are the most active driller of new wells in the U.S. and one of the leading consolidators of onshore U.S. natural gas assets. Headquartered in Oklahoma City, our operations are focused on exploratory and developmental drilling, and corporate and property acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas Gulf Coast, Barnett Shale, Ark-La-Tex and Appalachian Basin regions of the United States. Our proved oil and natural gas reserves have increased seven-fold from 1.2 tcfe in 1999 to 8.4 tcfe as of September 30, 2006. Similarly, since 1999, our average daily production has grown at an annualized rate of more than 25% to approximately 1.66 bcfe per day, of which 91% is natural gas. We own interests in approximately 33,700 producing oil & natural gas wells and have built what we believe is one of the industry's largest inventories of onshore leasehold (10.5 million net acres) and 3-D seismic data (14.7 million acres) in the U.S. On this leasehold the company has identified an estimated 25,000 net drilling locations, representing an approximate 10-year inventory of drilling projects, on which we believe we can develop approximately 3.2 tcfe of proved undeveloped reserves and approximately 16.4 tcfe of unproved reserves. Added to Chesapeake's 8.4 tcfe of proved reserves, this brings the company's total reserves to approximately 24.8 tcfe.

BUY 2009 $35 LEAP VEC-AG currently $5.30

Insurance put: none


THE $38.37 - TODCO

Todco was on the verge of breakout out over resistance at $41 last weekend and I recommended a breakout target at $41 and a breakdown target of $39. We were blessed/cursed with a downgrade on Thursday slamming Todco to nearly $38 and triggering the breakdown entry point. I am pleased with the slightly cheaper entry but not the way we got it. Credit Suisse downgraded Todco to neutral from outperform. Morgan Stanely, Morgan Keegan, Deutsche Bank, Hibernia, Wachovia, Lehman, Smith Barney, CSFB, Raymond James, Bear Stearns and Jefferies still have a buy rating. That is good enough for me.

Company Info:

TODCO is a provider of contract oil and gas drilling services, primarily in the United States Gulf of Mexico shallow water and inland marine region, an area that TODCO refers to as the United States Gulf Coast. TODCO operates a fleet of drilling rigs in the United States Gulf Coast, which include 64 drilling rigs consisting of 27 inland barge rigs, 24 jackup rigs, three submersible rigs, one platform rig, and nine land rigs. Forty-eight of these rigs are located in shallow and inland waters of the United States with the remainder in Angola, Colombia, Mexico, Trinidad and Venezuela. TODCO reports the results of those operations in four business segments which, for its contract drilling services, correspond to the principal geographic regions, in which TODCO operates: United States Inland Barge Segment, United States Gulf of Mexico Segment, Other International Segment and Delta Towing Segment.

Breakdown target $39 hit 12/7/06

Position: 2009 $45 LEAP ZYU-AI @ $8.40

 


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.

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LNG - $30.70 -0.55 - Cheniere Energy ** Stop Loss $27.00 **

No news no change in play. LNG slid a little on Thr/Fri but remains close enough to resistance at $32 that a breakout is possible.

To see the initial commentary on this position click here

Breakout target $31 triggered 11/30/06

Position 2009 $30 LEAP ONP-AF @ $8.50

No insurance: $25 is out of range and $30 is too expensive

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SNP - $80.58 -0.42 Sinopec

After gaining +$6 last week a -42 cent drop is definitely acceptable. Most of it came on Friday on the sharp uptick in the dollar. The drop was due to a press release saying SNP was spending $447 million to buy assets from its parent China Petrochemical Corp. It is buying controlling interest in several oil fields currently producing inside China. It will also sell US $1.5 billion in convertible bonds to build several large scale chemical plants. The issue size, rate, conversion price and structure has not been released. SNP is still a monopoly so nothing has really changed. Consider Friday's drop profit taking.

To see the initial commentary on this position click here

Entry $74.44 11/28/06

Position: July $80 Call SNP-GP @ $5.40

No insurance

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FXI $96.85 +2.70 - FTSE/Xinhua China 25 Index Fund

Nice rebound in FXI to a new historic high. No news.

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

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 hit 11/22/06 on gap open to $95.80

Position: 2009 $100 LEAP Call VHF-AT @ $13.50

No insurance

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MRO $93.73 -1.92 - Marathon Oil

Marathon hit a new historic high on Wednesday and then dropped a couple bucks back to support after Deutsche Bank cut them to a hold. It said it was cutting MRO from its list to avoid over exposure to the refining sector. No change in play.

To see the initial commentary on this position click here

Position 2009 $100 LEAP Call VXM-AT @ $12.60

Insurance put: None

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HES - $51.91 +1.61 - Hess Corporation (Formerly (AHC))

Outstanding! HES continues to set new 4-month highs with a new one on Friday. BAC downgraded HES to neutral on Tuesday but it barely dented its forward progress. Hess announced a regular quarterly dividend of 10 cents on Wednesday. No complaints and no change in play.

To see the initial commentary on this position click here

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

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

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BHP - $40.63 -0.26 - BHP Billiton

BHP was cut to neutral by Merrill along with the entire mining sector on worries that a slowing economy in 2007 could impact copper prices. BHP lost -61 cents on the news.

BHP continues to hold above support despite those rumors that it could outbid Freeport for PD. We have a good insurance put position in case they do something stupid. No change in play.

To see the initial commentary on this position click here

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

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

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BTU - $47.66 +0.67 - Peabody Energy

BTU continued to move higher after a +$4 move the prior week. HSBC initiated coverage with an outperform rating. The last 7 analyst moves on BTU have been buys. No complaints, no change in play.

To see the initial commentary on this position click herehttp://tinyurl.com/yy2ysv

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

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

No insurance put at this time.

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DVN - $72.07 -1.50 - Devon Energy

Devon was knocked for a loss on Friday after updating production estimates through 2009. They are discontinuing activity to produce gas in western Canada until conditions improve. The competitive battle for equipment, manpower, services and supplies has produced an environment that is highly inflationary and not conducive to profitability. The strength of the Canadian currency is also a challenge. Devon has elected to halt exploration activity until the situation improves. Demand for Canadian gas to fuel the tar sands conversion process is exceeding supplies.

Devon expects to produce 216 million BOE in 2006, 230-232 MBOE in 2007, 251-258 MBOE in 2008 and 270-285 MBOE in 2009. Estimated reserve additions for 2006 fell slightly to 420 MBOE from a prior range of 420-450 MBOE. This is still nearly double 2006 production! No change in play.

To see the last full commentary on this position click here

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

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

Insurance put:
Buy Apr-2007 $60 Put DVN-PL only if DVN trades at $69 again.

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RIG - $80.00 +1.16 - Transocean Inc

RIG continued higher on no news but likely on the current consolidation talk in the sector. Friday was a new five month high. No change in play.

Their rig report released Dec-1st: http://tinyurl.com/y3shx7

To see the last full commentary on this position click here

Earnings: Nov 2nd, 83 cents, 12 cent beat

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

Insurance put:
Buy Jan $65 PUT RIG-ML only if RIG trades at $71.

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TSO - $70.68 -.81 - Tesoro Corporation

Another new three month high on Wednesday. No news and no change in play.

To see the last full commentary on this position click here

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

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

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

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APC - $48.97 +.07 - Anadarko Petroleum

Algeria maintained its target of 2 mbpd of production by 2010 although they are only capable of 1.5 mbpd at present. On Dec 1st Dow Jones reported that they were lowering the target to 1.6 mbpd but the energy minister repeated the 2.0 number several times on Friday. This is relative because APC is the largest independent company in Algeria. The royalty rules are changing in Algeria but to date the details have not been disclosed. 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 $88.64 +1.12 - Cnooc Ltd

CEO continues to consolidate its gains from the prior week but came close to a new 3-month high on Friday. No news and 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)

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SU $79.04 +2.39 - Suncor Energy

Suncor reported oil sands production for November averaged 257,000 bpd. YTD averages have been around 258,000 bpd. Suncor is targeting 255K-260K for all of 2006 and baring a complete shutdown that should be in the bag. Suncor is fighting resistance at $81 but we should be good for a =$5 pop once that level is broken. No news and no change in play.

To 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

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SLB $66.52 -1.82 Schlumberger

After breaking out to a new 7-month high last week SLB was due to attract a downgrade on valuation. Wachovia stepped up and made the call cutting SLB to market perform from buy. That was good for a four-day decline but no real damage. 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 $33.12 -1.45 - Nabors Industries

Profit taking took the edge off Nabors but support at $33 held. No news and no change in play.

Link to recent presentation

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 $52.05 -2.15 - Ultra Petroleum

The dip in gas prices knocked UPL back about $2 bucks but less than their gains the prior week. Colder weather is on the way, I hope. There is a new webcast from the AMEX conference last week. 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.

AMEX Oil & Gas Conference Dec 5th
OGIS Investment Conference on Oct-4th
Enercom Oil and Gas presentation

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 $66.93 -2.05 - Sunoco

No news but SUN declined -$2 after setting a new 3 month high on Wednesday. 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

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PXP $47.60 +.05 - Plains Exploration

PXP set another new historic high on Wednesday before sliding slightly on profit taking as the week ended. No news and no change in play.

OGIS Investment Conference on Oct-4th

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, $35 stop

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FST $34.70 -.98 - Forest Oil

After cracking the $35 barrier the prior week FST fell victim to Friday's drop in oil prices. No news and no change in play.

Enercom conference presentation

To see the last full commentary on this position click here

Earnings: Nov-8th, +1.21 vs +0.05

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

No insurance due to cheap LEAP

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XTO $49.11 -1.33 - XTO Energy

XTO paused like everyone else. Limited profit taking on Friday but the high ground held. No change in play.

OGIS conference presentation on Oct 4th
Enercom presentation

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

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VLO $54.91 -.94 - Valero Energy

Support at $55 is holding after a very strong prior week. No news and no change in play.

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 - $98.22 +4.22 - Petroleo Brasileiro

Another amazing run by PBR tacking on another $4.22 stretching the gains for the last two weeks to $7.72. PBR announced on Thursday that it produced a record 484,000 bpd in November. This was an all time record by +31,000 bpd. PBR exported 14.52 mb in November. 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 - $81.10 +.51 - Diamond Offshore

DO set a new five-month high on Friday. There was no news but the trend on DO is still positive. Probably buying on expectations of that consolidation I mentioned earlier. 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

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CSX - $36.77 +0.71 - CSX Corp ** Stop Loss $35 **

CSX must have heard we put a stop on the play. The railroad chugged to a new two months high at $37.89 on Tuesday before dropping back to resistance on rising oil prices. Maintain a stop at $35 and we will exit on any future weakness.

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 - $45.76 +.76 - ATP Oil and Gas Corp

No change in play. Consolidation of the $10 move continuing.

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 - $129.77 +1.67 - Petrochina

Still holding the high ground PTR set a new historic high on Friday despite the drop in oil prices. I still believe this stock could be well over $150 before our 2008 LEAP comes due. No complaints and no change in play.

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


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Non-Energy Positions
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PCU $55.83 + 1.65 - Southern Copper

Another nice gain and no change in trend despite nearing a historic high. PCU announced raised estimates for reserves and mine life at two of its mines in Peru. No change in play.

To see the initial commentary on this position click here

Breakdown triggered at $51 on 11/14/06

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

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

**********************

CAT - $63.38 +2.21 - Caterpillar ** Stop loss $58 **

CAT moved up strongly to a new two month high on Thursday. Not an oil stock but no complaints. No change in play.

To see the initial commentary on this position click here

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

Insurance Put: none

***********************

TEX - $59.92 +3.94 - Terex Corp

TEX, recovered completely from the ISM dip and set another new high on Friday. It was also announced that South African diversified transport group Imperial Holdings had purchased Terex Africa for an undisclosed sum. No change in play.

To see the initial commentary on this position click here

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

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

Insurance Put:
10/23/06 Jan-$50 PUT TEX-MI only is TEX trades at $54.

**********************

DHI - $26.67 +.08 - DR Horton

DHI set a new six month high on Wednesday when all the builders were upgraded but lost ground on Friday when interest rates spiked. Now that everyone is recommending the builders they can get no respect. No complaints and 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

 


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