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Weekly Newsletter, Saturday, 12/30/2006

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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

Pause Before The Storm

Oil prices dipped early in the week as institutions adjusted positions ahead of year-end. When trading resumes next week we could see a flurry of activity and that bias could be higher. Energy is one of the few sectors still expected to prosper in 2007 and OPEC is determined to see that happen. How determined still remains to be seen but they are making all the right noises to convince traders they mean it this time.

It will be interesting to see what the first week of 2007 brings. We could see a sharp flurry of activity as those institutions and funds still long energy into year-end take profits while others establish new positions. You never know how the New Year is going to kick off.

A couple of stocks, which have benefited over the last couple years are PetroChina (PTR) and Sinopec (SNP). Last January both saw very sharp gains but that trend is not replicated in prior years. I prior years it was Nov/Dec that the big gains much like the gains we saw in 2006. I would like to believe that Jan-2007 will be a repeat of Jan-2006 but we need to trade what we see not what we wish to see. I am adding some insurance for PTR and raising the stop on SNP since it is not a LEAP.

Oil inventories fell by a huge -8.1 million bbls last week but it was due mostly to the week of dense fog on the Gulf coast that kept dozens of tankers from offloading their cargo for more than a week. We can expect inventories to climb for next week's report. This could pressure prices even though everyone knows it is only a snap back rebound.

We are about three weeks from the beginning of earnings in the energy sector and those earnings should continue to be strong due to the continued high oil prices. $60 may be low given the spike back in the summer but it is still +$10 above support for 2005 and +$20 or more above prices before 2005. The key for 2007 will be OPEC determination and continued strong demand from Asia.

The long-term problem is not going away. Since 1985 US oil consumption has increased by more than 5 mbpd while US production has fallen by more than 4 mbpd. Once $1 billion is invested monthly in the US in drilling new wells but the production numbers continue to decline for one simple fact. The larger fields which were easy to find and produce are gone leaving only the smaller, harder to find and slower to produce fields for current explorers. Oil found in these fields costs more per barrel and those numbers will only continue to rise. Over the same period since 1985 our imports have risen more than 9 mbpd. That is an amount equal to all the production of Saudi Arabia. Meanwhile demand from Asia is rising at the rate of Kuwait's production each year. These countries cannot continue to raise output at the rates needed to meet the additional annual demand each year. It is simply impossible. There is a substantial amount of new non-OPEC production coming online in 2008 but this is a one-time bounce and there is nothing on the horizon after 2009 to equal it. Since major new fields require 5-7 years minimum to begin full production analysts already know every major project scheduled through 2015. After late 2008 and early 2009 the outlook is bleak. This long term outlook will continue to support prices although there will still be peaks and valleys along the way.

That long-term view is why we are investing in oil. These are not trades that we get in and then jump out on the next spike. They are long-term positions that will be adjusted periodically to take advantage of the seasonal demand cycles for oil. The next seasonal change should be in Feb/Mar as winter demand begins to slacken and before summer demand is anticipated. Oil prices tend to historically weaken in Feb/Mar and then begin to rise again in Apr/May. We will plan on hedging our bets in late January and then adding to positions in April. Should a geopolitical event disrupt this cycle we will deal with it when it occurs.

Remember I expect volatility in the week ahead so don't be alarmed if long-term support is tested again.

A warning for those with weak hearts the natural gas chart below is very ugly. A complete breakdown of gas is underway due to the very high storage levels and lack of a real winter in the last two years. It could get worse before it gets better unless the perfect storm appears, blankets the entire US and lasts about a month.

Jim Brown


February Crude Chart - Daily

February Gas Futures Chart - Weekly

 


Changes in Portfolio

New Energy Plays

None


New Non-Energy Plays

None


Dropped Plays

None


New Watch List Plays Triggered

None


Portfolio Listing & Top Picks


New Plays

Most Recent Plays

None this week.


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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THE $34.18 -1.02 - TODCO

Todco continues to weaken towards strong support at $30-$33. The Todco rig 205 was struck by a cargo vessel last week and the extent of the damage is still unknown. The rig was insured for $33 million and Todco has already started legal proceedings against the vessel owner for a recovery of damages. Todco also reported a new 2-year contract with Pemex valued at $82 million for rig 206. No change in play

To see the initial commentary on this position click here

Current recommendation: Buy at $33

Breakdown target $39 hit 12/7/06

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

Insurance Put: None

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CHK $29.00 -0.80 - Chesapeake Energy

CHK lost a little ground as gas prices continued to implode. Major support at 28-29 is probably the stopping point. No change in play.

To see the initial commentary on this position click here

Current recommendation: Buy at $29

Position: 2009 $35 LEAP VEC-AG @ $5.30

Insurance put: none

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SNP - $92.64 +6.58 Sinopec *** Stop Loss $88.50 ***

Simply amazing! SNP gained +6 for the week and closed right at the all time highs. I am fearful of some profit taking hitting SNP next week so I raised the stop once again. We are up big in this position and I would hate to give it back. I would also love to see a repeat of last January to I am not going to simply close it. Let the market make that decision for us.

Because this is a July call and not a LEAP and because we are up +219% I am raising the stop to $88.50 rather than trying to add insurance in the form of a covered call or expensive put.

To see the initial commentary on this position click here

Current recommendation: Buy at $85

Entry $74.44 11/28/06

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

No insurance

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

FXI $111.45 +7.66 - FTSE/Xinhua China 25 Index Fund

The FXI broke resistance at $104 with a bang. This is another stock that is outperforming all the rest and I expect this to continue into 2007. The normal influx of year-end cash should see a large amount flowing into the international markets and primarily China. Insurance puts are far too expensive in my opinion and I do not want to sell calls ahead of the year-end cash flows. We just need to be patient and risk a few gains for a bigger reward.

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.

Current recommendation: Buy at $102 if you are lucky!

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

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

MRO $92.50 +1.73 - Marathon Oil

Marathon firmed slightly after a dip to near $90. $90 should be decent support but it depends on how many more funds are looking to shuffle their energy positions as 2007 begins. Under $90 would represent a good buying opportunity if crude continues to firm above $60. No change in play.

To see the initial commentary on this position click here

Current recommendation: Buy at $85

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

Insurance put: None

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

HES - $49.57 -0.73 - Hess Corporation
(Formerly (AHC))

HES continued to weaken but has not triggered our insurance put with a trade at $49. No news and no change in play.

To see the initial commentary on this position click here

Current recommendation: Buy at $46

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

Insurance Put:
12/24/06 Let's add the May $45 put HES-QI if HES trades at $49

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

BHP - $39.75 +0.98 - BHP Billiton *** Stop Loss $38 ***

BHP firmed and avoided our stop at $38. Since we have a $40 insurance put I am going to plan on exiting at $38 on the LEAP and leaving a profit target of $36 on the put. The minerals sector has taken a significant hit over the last two weeks and worries about a global slowdown in demand coupled with an uptick in production is pressuring the stocks. An exit at $38/$36 should be a breakeven with the put premium offsetting the loss in the LEAP.

To see the initial commentary on this position click here

Recommendation: Buy under $40

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

Insurance Put:
11/12/06 Feb $40 Put BHP-NH @ $1.50, profit target $36

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BTU - $40.41 - 0.29 - Peabody Energy

BTU appears to be holding at $40 and decent support. No change in play.

To see the initial commentary on this position click here

Current recommendation: Buy at $40

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

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

Insurance put:
12/24/06 March $35 Put BTU-OG if BTU trades at $39

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

DVN - $67.08 -1.03 - Devon Energy

Devon firmed slightly and held at the 100-day average on no news. Considering the plunge in natural gas prices I consider this a positive event.

I suggest closing the insurance put if DVN trades at $70.50.

To see the last full commentary on this position click here

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

Current recommendation: Buy at $65

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

Insurance put: Triggered 12/18 at $69
Position: Apr-2007 $60 Put DVN-PL @ $1.30, close at $70.50

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RIG - $80.89 +0.12 - Transocean Inc

RIG is holding just above support at $80 on no news. No change in play.

Their rig report released Dec-1st

To see the last full commentary on this position click here

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

Current recommendation: Buy at $75, or an aggressive $80

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

Insurance put:
Buy Feb $75 PUT RIG-O only if RIG trades at $79.

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TSO - $65.77 +0.33 - Tesoro Corporation

TSO firmed slightly and appears to be respecting support at the 100-day average. No change in play.

Maintain a stop loss at $60. If we hit $60 support has failed.

To see the last full commentary on this position click here

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

Current recommendation: Buy at $62.50 with stop at $60

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

Insurance put: cancelled

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APC - $43.52 +1.38 - Anadarko Petroleum

APC found some love with a couple more positive comments from analysts. We have strong support at $42 with the next support level at $35 and that is the profit stop for our current insurance put. There was a good article on APC this week, which can be seen at this link.

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

Current recommendation: Buy at $40, stop at $34

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

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CEO $94.63 +6.62 - Cnooc Ltd *** Stop Loss $91.50 ***

CEO was downgraded by Deutsche Securities in the prior week. I wonder what they are thinking today? The breakout over $90 came on strong volume and Friday's close was an all time high. CEO said it was going to begin operations on 16 new energy projects in 2007. Evidently that was enough to convince many funds this was the stock to buy.

We have a March call so I will be planning on exiting this play towards the end of January.

To see the last full commentary on this position click here

Current recommendation: Hold

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

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

No insurance put

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SU $78.91 +1.00 - Suncor Energy

No downgrade, no news and no change in play. Suncor saw a selling climax on the 26th with a dip to $76.39. Let's hope that was the end of it.

To see the last full commentary on this position click here

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

Current recommendation: Hold

LEAP Position: 9/11/06
Position: 2009 $80 LEAP Call OYX-AP @ $14.30
Cost update: +2.10 to $16.40 for expiration Dec put

Insurance put: 9/18
Position: Dec $60 Put SU-XL @ $2.10, expired

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

SLB $63.16 +0.27 62.89 -4.66 Schlumberger

SLB is respecting the 100-day average support at $62.50 after a couple weeks of liquidation by funds going into year-end. Let's hope there are funds that want to add SLB once 2007 begins. No change in play.

To see the last full commentary on this position click here

Earnings: Jan 19th

Current recommendation: Buy at $62, stop at $57

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 $29.77 -0.94 - Nabors Industries

Nabors lost a little ground for the week after saying it was calling off the acquisition of Moncla, a privately held well servicing firm with 56 land rigs. No reason was given but RIG said it remained open to a future deal. $29 is strong support. 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

Current recommendation: Buy at $30, stop at $27

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

No insurance

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

UPL $47.74 -0.31 - Ultra Petroleum

Falling gas prices continue to pressure UPL even though their production is almost entirely hedged at much higher levels. $45 is very strong support and falling gas prices may see it tested. 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

Current recommendation: Buy at $45, stop at $40

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

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SUN $62.15 -0.54 - Sunoco

After the prior week's drop a flat performance was a welcome relief. $60 remains strong support and my recommended buy level. No news and no change in play.

To see the last full commentary on this position click here

Earnings: Nov 1st, $2.76 vs $2.39

Current recommendation: Buy at $60, stop at $55

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 $47.53 +.28 - Plains Exploration

PXP continues to hold above support at $47. 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

Current recommendation: Hold

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

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

FST $32.65 -0.53 - Forest Oil

Still in the consolidation range and waiting for oil to find a direction. 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

Current recommendation: Buy at $30, stop at $27

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 $46.80 -1.67 - XTO Energy

Still holding above strong support at $45. 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

Current recommendation: Buy at $46

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 $51.12 -0.47 - Valero Energy

No news and no change in play. VLO is holding over strong support at $50 as we await the next move in oil prices.

To see the last full commentary on this position click here

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

Current recommendation: Buy at $50, stop at $45

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

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PBR - $102.86 +4.73 - Petroleo Brasileiro

Petrobras rallied strongly after Shell said their discovery in block BS-4 off the coast of Brazil was commercially viable and contained 1.6 billion bbls of oil. Petrobras owns 40% of this field, Shell 40% and Chevron 20%. No change in the play.

To see the last full commentary on this position click here

Earnings: Nov 10th, +29%

Current recommendation: Buy at $96, stop at $91

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

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DO - $79.94 -0.24 - Diamond Offshore

The profit taking moderated and DO coasted into year-end unscathed for the week. 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

Current recommendation: Buy at $75, stop at $69

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
Cost increase: Dec $60 put expired -2.40, cost now $13.45

Insurance Put:
10/08 Dec $60 Put DO-XL @ $2.40, expired

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

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

ATPG - $39.57 -1.47 - ATP Oil and Gas Corp

The profit taking continued with what appeared to be a climax dip into Friday's close. Hopefully this year-end selling is now over. No news and 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

Current recommendation: Buy at $38, stop at $34

LEAP Position:
8/20/06 Position: 2009 $40 LEAP Call VCL-AH @ $11.70
12/17/06 Cost update expired Dec 35 put -1.50 = $13.20

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

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

PTR - $140.78 +7.86 - Petrochina

Thursday was a new historic high and a definite breakout from the three weeks of uptrending consolidation. I still believe this stock could be well over $150 before our 2008 LEAP comes due.

Insurance Put: Buy Jan $135 Put PTR-MG only if PTR trades at $138.50. Once entered set a profit stop at $132.50 and a stop loss at $140.50.

To see the last full commentary on this position click here

Current recommendation: Buy under $110

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

Current recommendation: Buy at $128.50, stop at $124

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
Cost adjustment: Expired Dec $100 put +2.20 = $20.00

Insurance put: (12/31)
Buy Jan $135 Put PTR-MG only if PTR trades at $138.50. Once entered set a profit stop at $132.50 and a stop loss at $140.50.

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

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

PCU $53.84 +1.18 - Southern Copper

After a very dismal prior week it appears investors were buying the dip ahead of year-end. Fear of a PCU bid for Phelps Dodge has evaporated. Now the only holdback is the drop in copper prices. No change in play.

To see the initial commentary on this position click here

Current recommendation: Buy at $50, stop at $45

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

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

TEX - $64.58 +1.18 - Terex Corp

The gains made on the move into the S&P-500 appear to be sticking. The covered call play from last week ended up costing us +1.15 after the apparent fade from the S&P announcement ended with the strong market rally pushing TEX to our stop at $66. No news on the play.

Sell a Jan $65 Call - TEX-AM currently $1.85
Set a stop at $66.

To see the initial commentary on this position click here

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

Current recommendation: Hold

Position:
10/23/06 Jan-2009 $60 LEAP VXQ-AL @ $10.90
Cost update +1.15 for stopped call, cost = $12.05

12/24/06
Sold Jan $65 Call - TEX-AM @ $1.85, stopped 12/27 $3.00, -1.15

Insurance Put:
12/31/06 Apr-$55 PUT TEX-PK only if TEX trades at $61.

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

DHI - $26.50 +0.51 - DR Horton

Strong housing data for new home sales provided a floor and a boost. 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

Current recommendation: Hold

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

Insurance put: None
 


Leaps Trader Watch List

Dropped Entries

None


New Watch List Entries

None

Current Watch List

ECA - Encana

12/17 commentary:

Encana (ECA) needed protection last week but there was none to be found. Encana fell -4.5% on Friday after releasing production guidance that was lower than their guidance of just five weeks ago. Encana, like other energy companies operating in Canada is seeing a sharp spike in exploration and production costs due to a shortage of equipment and personnel. Several companies have either shutdown or postponed exploration in Canada until the situation moderates. Encana announced a budget of $5.9 billion for 2007 to grow natural gas and oil sands production, a -6% decrease from 2006. The company will fund the budget entirely from internal cash flow and have $1.7 billion in free cash flow remaining. Natural gas production is expected to grow by +9% but oil production is expected to decline by -5% due to accelerating depletion of existing fields. On the plus side they are scheduled to finalize an agreement on Jan-2nd with Conoco Phillips to create an integrated heavy oil business, which will generate immediate additional cash flow for Encana. Encana's average daily production from the partnership is expected to grow about +44% in 2007 to an additional +31,000 bpd. They expect additional pre tax cash flow in the range of $550-$650 million net to Encana in 2007 from the partnership. Encana had planned to repurchase 10% of outstanding shares in 2006 and they have completed 9.4% to date, 81 million shares, and expect to complete the buyback before year end. In 2007 they plan on purchasing another 3-5% or 24-40 million shares out of free cash flow. They are also planning on DOUBLING the dividend to 80 cents per share in 2007. Encana has hedged 1.5 Bcfpd of their 1.75 Bcfpd of 2007 production at $8.49 per Mcf with put options on the rest at $6 per Mcf. Personally I think Encana is doing exactly what they should do and that is increase profitability while targeting their budget dollars where it will do the most good rather than just throw money at everything all at once. What many people don't understand is that those reserves in the ground will become more valuable as each day passes. Encana can afford to wait until the economics make sense to produce them. Why pay high prices today to extract them for $8 per Mcf when they can wait a year or two and get $12 or higher for the same gas?

The sharp sell off came from a downgrade to a SELL by Citigroup citing concerns over the company's portfolio and the reduction in guidance. The selling accelerated by a triple digit loss, -156, in the Canadian markets with energy, materials, metals and financials all taking severe hits. Petro Canada (PCZ) dropped -5% or -$2.11. I am not recommending Encana as a play this weekend because we don't know how long this weakness will last. Chesapeake was hit with the same kind of selling the prior week and continued lower on the fall in natural gas prices this week. Encana, currently $50 is too expensive for the at-the-money $50 LEAP and too far away from the $60 LEAP. It has strong support in the $44-$46 range and I would rather wait to see if we can buy it cheaper.

Company info:

EnCana Corporation is a natural gas producer in North America. It is a holder of natural gas and oil resource lands onshore North America. The Company is also engaged in select exploration and production activities internationally. EnCana operates under two main divisions: Upstream and Midstream & Marketing. The Upstream division manages EnCana's exploration for, and development and production of, natural gas, crude oil and natural gas liquids (NGLs) and other related activities. EnCana's Midstream & Marketing division encompasses the Corporation's market optimization activities and remaining midstream assets. EnCana is in the process of divesting the majority of its remaining midstream assets, including its natural gas storage business and the Entrega Pipeline.

Breakdown target: $45

Buy 2009 $50 LEAP Call ZBM-AJ

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

OSX - Oil Service Index - Naked Put

The Philadelphia Oil Service Index is an index of 15 companies that provide drilling and production services, oil field equipment, support services and geophysical/reservoir services. This index contains companies like Halliburton, Nabors, Schlumberger, etc.

Complete list of OSX components

Play description:

Raymond James analyst, Marshal Adkins, the second best stock picker in the energy sector as rated by StarMine believes oil will reach $100 and the Philadelphia Oil Service Index (OSX) will reach $275 some time in 2007 due to a combination of supply problems, extreme weather, hurricanes or other geopolitical occurrences. Long-term options on the OSX are expensive so I am electing to sell a put instead of buy a call. I am going to put a stop $160 and just under the 52-week low of $170. That is a $2500 risk with the potential for a $6500 profit. The entire key will be the price of oil. As long as oil remains over $55 per bbl the demand in the oil patch for oil well servicing will remain very strong. Once past this current weakness OPEC has said they would cut production again if oil slipped below $60. This is our insurance on the play. Our breakeven is $185 and our maximum profit comes with the OSX over $250 at the September expiration.

Breakdown trigger $185

Sell Sept $250 PUT - OFJ-UJ
 


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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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