Option Investor
Newsletter

Weekly Newsletter, Saturday, 01/06/2007

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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

Perfect Storm

Last weekend I titled this commentary the "Pause Before the Storm." I suggested we could see some increased volatility and while we never know what a change in tax year may bring I definitely did not expect the volume of selling we had this week. When the storm arrived it turned into the perfect storm where nobody wanted to step outside to pick up any bargains.

You should not have been surprised at the dip after my warning in the Dec-31st LEAPS Newsletter:

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

Oil prices fell -5.95 this week after a strong loss of -3.30 the last week of 2006. Evidently fund managers were holding their breath on their energy longs and waiting for the clock to run out on 2006. Once into 2007 it was a solid dump with volume 3-5 times normal on many issues and ETFs. Metals were also hammered with investors taking profits from the strong 2006 gains.

It was surprising to me that energy was hit so hard given the slow decline into Q4. It appeared most funds had already bailed during that big August/Sept decline but evidently not. It is also possible that others bought that dip to just over $60 and then found their money stagnant for the next three months. Exiting 2006 simply gave them another opportunity for a free portfolio adjustment.

Whatever the reason oil prices declined to $55 and rebounded right on cue when that level was hit. This is strong support dating back to March 2005 and is followed by stronger support at $50. Obviously we don't want to see $50 tested but I think we can expect $55 to be tested again next week. A successful test could provide a floor for the OPEC production cuts scheduled for Feb-1st and hopefully provide an incentive for OPEC to enforce the cuts called for as of Nov-1st.

Since we are not in control of oil prices we have to play the cards we are dealt. That means we took some big hits on some of our current positions. PetroChina for instance lost -$12 from last Friday's $142 high but that is only -$2 from the close the prior Friday. Those big gains we saw on PTR, SNP and FXI the last week of 2006 were erased by profit taking once 2007 arrived. I view this as a buying opportunity since growth in China has not slowed overnight.

Natural gas prices also collapsed going into year end but seem to have found a bottom at $6.00. I would not count on this bottom holding unless some cold weather arrives soon. The weather service said December was the warmest December in the US in 111 years. This left inventories of natural gas at near record levels and large supplies of heating oil. Late Friday afternoon there was a long term forecast that said the warm weather trend might break in mid January with 4-6 weeks of cold weather to follow. I would not trust this forecast any more than the hurricane forecast for 2006. Again, we will have to play the hand we are dealt regarding price pressures from lack of winter demand.

Conoco Phillips also added to the sector downdraft after warning that Q4 refining and marketing margins would fall significantly and that worldwide production would be unchanged from Q3. This is going to be a normal thing for the big integrated oils since they are essentially self-liquidating corporations. Every day they pump oil that they cannot replace at the same rate they produce it. Conoco, BP and Shell have all said they would not be able to replace reserves. This should be a clear sign to everyone that the end is rapidly approaching.

Last week's volatility triggered a couple of exits and both entries on the watch list. It also triggered entries into several insurance puts. I also closed several others due to new information and broker downgrades. Be sure to check the play notes for those positions you currently own.

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
BHP - $37.16 - BHP Billiton *** Stop Loss $38 ***
CEO - $88.40 - Cnooc Ltd *** Stopped $91.50 ***
NBR - $28.55 - Nabors Industries ** Closed on warning **
XTO - $45.23 - XTO Energy *** Closed on downgrade ***
PCU - $50.96 - Southern Copper *** Closed on copper outlook ***
TEX - $57.96 - Terex Corp *** Closed on downgrade to sell ***

New Watch List Plays Triggered
OSX - $186.37 Oil Service Index Stop loss OSX $160
ECA - $44.86 Encana  

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

OSX - $186.37 - Oil Service Index - Stop loss OSX $160

We were triggered on the watch list OSX naked put when the index hit $185 on Jan-4th.

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 loss at $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 in February 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. We are profitable with any close over $185 at expiration.

Index Description:

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

Breakdown trigger $185 hit Jan-04

Position:
SHORT Sept $250 PUT - OFJ-UJ @ 58.50, Stop loss OSX $160

Chart of the OSX

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ECA - $44.86 - Encana

We were triggered on the position when Encana hit our breakdown target of $45 on Jan-3rd.

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 hit Jan-3rd

Position: 2009 $50 LEAP Call ZBM-AJ @ $6.60
 


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 $32.65 -2.55 - TODCO

No news. Strong support just below at $44. No change in play

To see the initial commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $43

Breakdown target $39 hit 12/7/06

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

Insurance Put: None

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CHK $27.95 -1.85 - Chesapeake Energy

Not a good week for CHK with gas prices falling and downgrades from Goldman and Prudential. Major support at 28 has been reached. This is the recommended buy point so no reason to exit here. No change in play.

To see the initial commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $29

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

Insurance put: none

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SNP - $90.95 -1.60 Sinopec *** Stop Loss $88.50 ***

Sinopec held the +$6 it gained the prior week and resisted the massive profit taking hitting PTR and CEO. Considering it gained +84.8% for all of 2006 it was due some profit taking. Definitely no complaints here.

Because this is a July call and not a LEAP and because we are up +200% I am keeping the stop at $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

Earnings schedule: N/A

Current recommendation: Buy at $85

Entry $74.44 11/28/06

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

No insurance

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

FXI $105.95 -5.26 - FTSE/Xinhua China 25 Index Fund

The FXI spiked to $118 on Wednesday's open before falling back to close just over $105 on Friday. This was a result of the China indexes getting hammered on profit taking and news that the central bank was raising the reserve requirements. The falling price of oil also helped push it lower with SNP, PTR and CEO all components in the ETF. I consider this a buying opportunity.

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 under $105

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 $85.92 -6.58 - Marathon Oil

Marathon took it on the chin after the Conoco earnings warnings. It had been holding in the low 90s as we waited for oil prices to firm. The Conoco warning knocked it back to support at $85. This is where I had highlighted a potential new entry point. This should be decent support assuming oil prices don't head further south. No change in play.

To see the initial commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $85

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

Insurance put: None

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HES - $47.95 -1.62 - Hess Corporation
(Formerly (AHC))

Hess lost -$3 on the Conoco warning and held that level the rest of the week. This is $1 over my speculative buy level at $46. Hess also announced a successful sidetrack well to its Pony 1 discovery in the Gulf. This well was 2700 feet northeast of the discovery well at a depth of 30,634 feet. They are now going to drill another appraisal well 7,400 feet northwest of the discovery well and expect a similar 300-475 feet of pay. Hess estimates this discovery to contain 100 to 600 million bbls of oil and they have a 100% working interest in the discovery. Hess announced this the same day Deutsche Securities cut them to hold. No change in play.

To see the initial commentary on this position click here

Earnings schedule: Jan 31st

Current recommendation: Buy at $46

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

Insurance Put: Triggered Jan-3rd @ $49
01/03/07 May $45 put HES-QI @ $2.60, stop loss $51.50

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BHP - $37.15 -2.59 - BHP Billiton *** Stopped $38 ***

BHP finally hit our exit stop at $38 after support at $38.50 failed. We are going to leave the insurance put active with a profit stop at $36. Copper supplies in London totaled 195,575 tons on Tuesday and very near the 200,000 ton level which indicates a surplus.

To see the initial commentary on this position click here

Earnings schedule: N/A

Recommendation: Buy under $35 for oil assets

Position:
10/29/06 2009 $40 LEAP Call ZPK-AH @ $11.10, exit $6.80, -4.30

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

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BTU - $37.25 -3.19 - Peabody Energy

BTU support at $40 crumbled after Morgan Stanley removed Arch Coal from its focus list due to warmer weather and weak demand for coal fired power generation. The drop through $39 triggered our March insurance put. The profit stop on this put will be $35 and stop loss at $42.50.

To see the initial commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $35

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

Insurance put: Triggered with drop through $39
01/03/07 March $35 Put BTU-OG at $1.15, stops at $35 and $42.50

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DVN - $65.32 -1.76 - Devon Energy

Devon took a smaller hit than MRO and HES on the Conoco news and lost a very respectable -1.76 for the week. Devon also reached my buy target for new entries at $65. No news and no change in play.

I suggest closing the insurance put if DVN trades at $68.50.

To see the last full commentary on this position click here

Earnings schedule: Feb-7th

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 $68.50

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RIG - $76.59 -4.34 - Transocean Inc

RIG support at $80 crumbled with the sector on no news. RIG hit my buy level at $75 for new positions on Thursday. The insurance put was triggered and exit stops are listed below.

Their rig report released Jan-5th

To see the last full commentary on this position click here

Earnings schedule: N/A

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: Triggered at $79 on Jan-3rd
1/3/07 Feb $75 PUT RIG-NO @ $2.55, stops $70.50, $78.50

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TSO - $65.67 -0.10 - Tesoro Corporation

TSO respected support at the 100-day and was upgraded by Citigroup to a buy from hold. This resulted in only a -10 cent loss for the week. I am in shock! 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 schedule: Feb-1st

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: None

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APC - $41.31 -2.21 - Anadarko Petroleum

APC finally broke support at $42 on the downdraft in oil and a downgrade from Prudential. The new buy level is $40 and we are very close. I changed the stop on the put to $39 since it only has two weeks until expiration. Hopefully support at $40 will hold without another implosion in oil prices.

To see the last full commentary on this position click here

Earnings schedule: N/A

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, stop @ $39.00

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CEO $88.40 -6.23 - Cnooc Ltd *** Stopped $91.50 ***

CEO rolled over from its new high on Wednesday and triggered our exit stop at $91.50 on the downdraft. We entered the play back in September at $80 but CEO went dormant shortly thereafter. The premium declined with time and we ended up only exiting with a small gain. While that is better than a sharp stick in the eye it was hardly worth the effort. $4.20 was the high on Wednesday but that quickly evaporated with the -6 point drop.

To see the last full commentary on this position click here

Current recommendation: Hold

Earnings schedule: N/A

Position: March $90 Call CEO-CS @ $2.40, exit $2.90, +0.50

No insurance put

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SU $72.65 -6.26 - Suncor Energy

The Conoco warning and a downgrade by Deutsche Securities to hold combined to knock a whopping -$6 off Suncor. Suncor said it produced an average of 281,000 bpd from its oil sands facility during December compared to the average for all of 2006 at 260,000 bpd. Deutsche also said planned maintenance work would limit upside production. No change in play.

To see the last full commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $70

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

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SLB $59.32 -3.96 Schlumberger

SLB suffered with the sector on no news. I would be a buyer under $60 with a stop at $54. No change in play.

To see the last full commentary on this position click here

Earnings schedule: Jan 19th

Current recommendation: Buy at $60, stop at $54

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

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NBR $28.55 -1.22 - Nabors Industries ** Closed **

Nabors warned on the 3rd that it would miss prior estimates for the quarter and the full year due to lower demand for gas well drilling services in North America. 26 rigs were out of service as of last week. S&P cut estimates for dayrate and margin growth in North America but said international drilling demand should continue to grow. With no insurance and lowered expectations I am dropping it as an active play.

Link to recent presentation

To see the last full commentary on this position click here

Earnings schedule: N/A

Current recommendation: Avoid

LEAP Position:
9/12/06 2009 $40 LEAP Call VRB-AH @ $4.50, exit 2.25, -2.25

No insurance

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

UPL $46.86 -0.86 - Ultra Petroleum

UPL made a miraculous recovery after being knocked for nearly a -$4 loss on Wednesday. No news and no change in play. $45 is strong support and my recommended buy target.

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 schedule: N/A

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, stop $39

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SUN $59.68 -2.47 - Sunoco

Another Conoco warning victim SUN fell to my recommended buy target of $60 and strong support. They also announced a 25-cent dividend and their earnings date of Jan-31st. No change in play.

To see the last full commentary on this position click here

Earnings schedule: Jan-31st

Current recommendation: Buy at $60, stop at $54

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

Insurance Put:
Position: Jan $55 Put SUN-MK @ $2.40, stop $54

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

PXP $45.85 -1.68 - Plains Exploration

Minor loss on 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 schedule: N/A

Current recommendation: Buy at $44, stop $40

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 $31.17 -1.43 - Forest Oil

Minor loss and still holding in its recent range. On their last analyst conference they said production was going to spike sharply in Q1 and I suspect they will mention it again with their Q4 earnings. No news and no change in play.

Enercom conference presentation

To see the last full commentary on this position click here

Earnings schedule: N/A

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

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

XTO $45.23 -1.67 - XTO Energy *** Closed ***

XTO was downgraded by Keybank to a hold along with 9 other companies with exposure to the rising gas risk. Since we are still positive in XTO and there is no discernable trend in this stock I am electing to take a safe exit here. The put has minimal value with six weeks left to run. I would continue to hold the put just in case.

OGIS conference presentation on Oct 4th
Enercom presentation

To see the last full commentary on this position click here

Earnings schedule: N/A

Current recommendation: Ignore

LEAP Position:
9/12/06 2009 $50 LEAP Call OUO-AJ @ $6.50, exit $7.00, +0.50

Insurance Put:
Feb $35 Put XTO-NG @ $1.40, no value, continue to hold.

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

VLO $49.36 -1.76 - Valero Energy

Another Conoco casualty. No news and no change in play.

To see the last full commentary on this position click here

Earnings schedule: Feb-1st

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, stop $45

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PBR - $95.29 -7.45 - Petroleo Brasileiro

Petrobras rallied strongly into last Friday's close on news of a new discovery and then collapsed into the close this Friday giving back a whopping -7.45. Fortunately after the prior week's +4.75 gain the drop this week only took us back to levels seen on 12/19. It was simply profit taking on no news. No change in the play.

To see the last full commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $96, stop at $88

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 - $77.17 -2.67 - Diamond Offshore

Ditto, no news, minor drop, no change in play.

To see the last full commentary on this position click here

Earnings schedule: N/A

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 - $37.51 -2.07 - ATP Oil and Gas Corp

The dip for the week took ATPG back to my buy level at $38. 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 - $130.70 -10.24 - Petrochina

A new high on the 29th and a new four-week low on the 5th. That is a heck of a way to celebrate the New Year. With PetroChina's 3.6% dividend and +25.2% EPS growth I doubt it will be down for long. I would view this return to $130 as a buying opportunity once the Chinese indexes end their swoon.

The insurance put I suggested last week turned out to be a quick trade with an entry at $138.50 ($1.90) and an exit at $132.50 ($4.50). I had no idea PTR would crater so rapidly or I would have gladly held the put for another day or two.

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

Earnings schedule: N/A

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
Cost adjustment: Closed Jan $135 put -2.60 = $17.40

Insurance put: (12/31)
1/03/07 Jan $135 Put PTR-MG at $138.50, $1.90
1/04/07 Profit stop at $132.50, $4.50 for +2.60.

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
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PCU $50.96 -2.88 - Southern Copper *** Closed ***

PCU imploded on the sudden surplus of copper and forecasts for even more supplies to drive down the price later this year. I view PCU as promising long term but I believe there is more pain ahead before that long term appears.

To see the initial commentary on this position click here

Earnings schedule: N/A

Current recommendation: Buy at $42

Breakdown triggered at $51 on 11/14/06

Position: JUNE $55 Call PCU-FK @ $3.80, exit 2.80, -1.00
(no leaps)

Insurance Put: None

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

TEX - $57.96 -6.60 - Terex Corp *** Closed ***

Citigroup downgraded Terex from a "buy" to a "sell" on sharply deteriorating fundamentals. Citigroup said the business is beginning to lose steam and a recently announced $200 million buyback shows the company has no acquisition targets or better uses for the cash. TEX dropped sharply to initial support at $60 but I fear there is more pain ahead. The gains in 2006 put TEX in the top ten but fears of an economic slowdown could knock another -8 off the stock very quickly. I would consider another entry at $50 once support has been tested. Let's exit with a profit today and review it again later.

Maintain the insurance put with a stop at $52.50 and $61.00

To see the initial commentary on this position click here

Earnings schedule: N/A

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
Play exit 01/07 @ 14.50, +2.45

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

Insurance Put:
01/03/07 Apr-$55 PUT TEX-PK at $61 @ 2.60, stop $52.50

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

DHI - $25.86 -0.66 - DR Horton

Moving slower than molasses in January but the trend is still higher. Resistance at $27.50 is the current challenge. No change in play.

To see the last full commentary on this position click here

Earnings schedule: Jan-23rd

Current recommendation: Hold

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

Insurance put: None
 


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