Option Investor
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Weekly Newsletter, Saturday, 09/08/2007

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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

Against All Odds

The price of crude continues to rise despite all the fundamentals being stacked against it. Two category 5 hurricanes have failed to enter the gulf leaving all oil platforms operating normally. Monday is the peak of hurricane season and storm frequency normally declines sharply after that date passes. Crude inventory levels remain near 10-year highs even after two weeks of big drawdowns. Gasoline prices have stalled at $2 and with driving season over it should begin to decline soon. Gasoline inventory levels declined by -1.5 million barrels last week but that was the smallest decline in 3-weeks and inventories should build from here. Refinery utilization spiked unexpectedly to 92.1% from 90.3% the prior week. This jump in utilization came after a week where six refineries were down due to various problems. The spike in utilization allowed distillate stocks to rise by +2.3 million barrels. Gasoline stocks should follow that rise next week.

All the factors except one say that oil prices should be falling instead of rising. That one is the falling dollar. With the dollar dropping in value every day it takes more dollars to buy oil. This is keeping the pressure on prices but that too may have run its course. Once the inventory reports show that gasoline levels are rising there will be more downward pressure on oil prices than upward pressure from the falling dollar.

OPEC meets on Tuesday and there is a battle being fought in the press between OPEC members. Oil ministers for Algeria, Iran, Libya, Qatar and Venezuela said in the past week they support keeping the quota at its present 25.845 million barrels per day until December. Of course those are countries without any excess production so raising the quota would not help them and oil prices would fall. I would vote the same way if I were in their position. It is widely believed that OPEC has unofficially raised its target price for crude to $70 according to Claude Mandil, director of the IEA, which advises 26 of the largest oil consuming nations. They won't officially say that for fear of bringing reprisals but they are definitely acting as if that is the new base. The 10 OPEC members with quotas are pumping more than their quota now by about a million barrels per day at 26.71 mbpd but they will not admit it publicly since it would drive the price down. That number came from the IEA and was gathered from individual production shipments. Iraq and Angola have no current quota and are allowed to pump as much as they can. Production from all 12 OPEC nations was 30.33 mbpd in August. OPEC leaders claim an increase in production is not necessary because the subprime problem in the U.S. is going to push us into a recession and reduce demand.

Exxon's CEO jumped right in the middle of the OPEC word war with his "oil over valued" claims on Friday. Rex Tillerson said there was no fundamental justification for oil over $70. In fact he said the fundamentals support something much less than $70. So now we have the IEA claiming the world will be short two million barrels per day in the 4th quarter and OPEC claiming that oil supplies are sufficient so they can keep prices over $70. We have Rex saying that $70 is not justified. Who is right?

They are all right. No, I have not completely lost it. OPEC is talking about all the grades of oil they produce when they discuss daily production and inventory levels. Using that yardstick the world does have more oil than it can currently use. It is just no in the form we need for gasoline. There is a shortage of light sweet crude and that is the grade that is quoted in the press when they say oil prices hit $XX today. OPEC claims it is not an oil shortage but a refinery shortage that is keeping prices high and they are right. If we had more refineries capable of processing the heavy sour crude into gasoline the price of oil would be lower because demand for light sweet crude would slow. That is not going to happen any time soon. It takes a long time to build a refinery and although several are under construction in the Middle East it will be a couple years before they have any impact. By then demand will have risen by double or triple the capacity being added so the problem will still exist. If you add 500,000 bpd of sour refining capacity per year and crude demand rises by 1.5-2.3 mbpd per year we are still behind the curve. The IEA is right, the demand is rising and we will consume more oil in Q4 but we have plenty in inventory and OPEC cheating will fill in the gaps. Rex Tillerson is right that current fundamentals don't support oil at $70 because of the excess inventory levels around the globe. Everybody is in hoard mode thanks to OPEC's production cutback and oil is building up in storage just in case a problem arises like a gulf hurricane, Nigerian violence, an Israeli attack on Syria, a U.S. attack on Iran or a 9/11 anniversary event. Nobody wants to get caught short if something happens. The problem here is shrinking levels of available storage. A million barrels of oil takes up a lot of room and it has to be easily accessible to be of any use. That limits how much more oil can be stored around the world.

All the factors point to an eventual short-term decline in oil prices that could begin at any time. Of course we have been waiting for it for several weeks now. The hurricanes provided additional buying and the threat of another storm is keeping the price high. Once we are past the Sept-10th hurricane season peak and the Sept-11th OPEC meeting we should see increasing pressure on prices. Until then we just have to be patient.

I should remind everyone that these are just short-term cycles and the long-term outlook is still for much higher oil prices as demand increases beyond our capacity to produce oil. It is a guaranteed event only the date is unknown. The various demand forces ebb and flow with the annual cycles but the total demand always moves up along with the increase in global population growth. Production increases are becoming harder to find and maintain and depletion rates are increasing. There is no way out of this scenario and all we can do is sit on the sidelines and wait for the fat lady to sing.

Friday's employment report caused the markets to retreat and that included energy stocks even though oil prices were moving higher. I believe a crack in support for oil will hasten the decline in oil stocks. With the market likely to be weak for the next 8 days until the Fed meets it is a perfect setup for a drop in the oil sector. I am not changing the entry points on the majority of the watch list because I still believe the prices will come back to us as long as the hurricanes stay away.

The XLE Put play was not stopped out on Thursday. There was a bad tick at the open and the high for the day showed as $72.25 but the XLE never traded there. You can check on any intraday chart and see the actual opening high was $71.98. Just in case there was any confusion I sent everyone an email Thursday afternoon affirming that we wanted to keep the XLE put and anyone who exited on the bad tick should consider reentering the play.


October Crude Futures Chart - Daily

October Natural Gas Futures Chart - Daily

October Gasoline Futures Chart - RBOB Daily

 


Changes in Portfolio

New Energy Plays

None


New Non-Energy Plays

None (see note)


Dropped Plays

None


New Watch List Plays Triggered

None


Portfolio Listing & Top Picks


New Plays

Most Recent Plays

I considered adding Goldman Sachs as a short term call play to capitalize on their earnings on Sept-20th but with LEH/BSC on the 13th there was too much risk for me. I believe LEH/BSC may not post earnings as bad as expected and Goldman has already been punished for the sins of others. Goldman should post a strong quarter because of their trading book but there is no way to be sure in advance. I will look at Goldman again next weekend and maybe we can get a play off before they report.

I also hesitate to try and add plays in the midst of this market volatility ahead of the Fed. We have a full watch list and we need to stick to the game plan.
 


Play Updates

Existing Plays

XLE $70.26 +0.43 - Energy Spyder *** PUT *** Stop Loss $72 ***

The XLE Put play was not stopped out on Thursday. There was a bad tick at the open and the high for the day showed as $72.25 but the XLE never traded there. You can check on any intraday chart and see the actual opening high was $71.98. Just in case there was any confusion I sent everyone an email Thursday afternoon affirming that we wanted to keep the XLE put and anyone who exited on the bad tick should consider reentering the play.

Target $66 for an exit.

Breakout Trigger: $69.50 Hit 8/31

Position:
Dec $67 Put XBT-XO @ $2.55
Dec $67 Put GQQ-XO @ $2.70

GQQ-XO is a quarterly strike listed by mistake.

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UPL $53.69 +0.29 - Ultra Petroleum *** Stop Loss $48 ***

No change in UPL with gas prices holding at $5.50 they are still highly profitable. Their all in costs are $2.65 Mcfe where the industry average is $5.02 Mcfe. This makes Ultra highly profitable even at $5 gas. Plans by some producers to cut production until prices rise should also help UPL. Support at $53 is holding.

Prior comments:

They have identified three more producing zones at their Pinedale field that could substantially increase production. They also expect to receive some further downsizing on well placement allowing them to drill 2-4 times as many wells. They also expect to receive permission from the State of Wyoming to drill during the winter months effectively giving them an extra quarter or more of production per year. Now, we just need winter to show with some teeth this year and deplete the 3 tcf of gas currently in storage.

Ultra Petroleum presentation

Breakdown target: $52.50 Hit 8/30

Position: Jan 2009 $60 LEAP Call OZH-AL @ $8.00

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CHK $33.99 +1.73 Chesapeake Energy

CHK experienced a nice bounce early in the week when they announced they were going to cut back on production and slow down on drilling until gas prices recovered from their current lows. CHK also said it was going to sell off five sets of proven reserves and create a separate master limited partnership to hold its midstream gas-gathering and processing operations. These moves should raise about $3.5 billion and enable them to raise additional capital without going to the equity markets.

CHK was recently upgraded to 5 stars by Morningstar.

Link to Enercom presentation

Position: 2010 $35 LEAP Call WZY-AG @ $6.60 ** No Stop on LEAP **

Insurance put:
Oct $30 Put CHK-VF @ 90 cents. Profit stop $28

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HP $31.83 +0.34 Helmerich & Payne *** Stop Loss $27.50 ***

HP had a good week going until the market started turning weaker. We saw a slight dip after the overhead collision with the 100-day average. No news other than a great looking chart.

Enercom presentation here

Position: Jan 2009 $35 LEAP Call ZQA-AG @ $4.50

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HERO $25.49 +.05 Hercules Offshore ** Stop Loss $24.00 **

Hercules is struggling to hold above $25 and news of a director purchase of 20,000 shares at $25.30 did not help. I don't know why HERO is having such a hard time when the other service stocks are doing so well. Maintain the stop and we will take our chances.

Enercom presentation

Position: 2008 April $30 Call HIQ-DF @ $3.00

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GLBL $24.45 +0.27 Global Industries ** Stop Loss $18.50 **

Global finally moved over the 100-day average and is now using it as support. Somebody had been sitting on the price for the last 3-weeks and it appeared on Thursday morning they ran out of shares. There was no news.

Enercom presentation

Position: 2008 March $25 Call GQO-CE @ $3.30

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BHP - $64.18 +1.03 BHP Billiton ** Stop Loss $47.50 **

BHP was moving up nicely until rumors of a potential takeover of Rio Tinto (RTP) surfaced. The unconfirmed rumors suggested that either BHP or RIO would make a bid for RTP. BHP declined to comment on the rumor and the stock lost -$2 on Friday.

Breakdown target: $55 hit 8/15/07

Position: 2010 $70 LEAP Call LPH-AN @ $9.00

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NOV - $129.89 +1.89 National Oilwell ** Stop Loss 127.00 **

NOV hit a new high on Thursday but gave back nearly $5 on Friday in profit taking. There was no news but given the strong gains it is about time to exit ahead of their split. I am raising the stop to $127 to take us out on any continued weakness.

2:1 split date: Sept 28th. Exit before the split

Breakdown target: $100 hit 8/16/07

Position: FEB $110 Calls NOV-BB @ $9.70

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CCJ - $40.57 +0.19 Cameco ** Stop Loss $30 **

CCJ rallied on Thursday on news of a stock buyback and a progress report on the Cigar Lake Mine. The remedial efforts to repair the mine after a flood are nearly complete and progress is moving faster than previously expected. CCJ said it was going to buy back 5% of its outstanding shares or 17.7 million shares.

Breakdown target: $35 Hit 8/16/077

PPosition: 2010 $50 LEAP Call LTA-AJ @ $7.20


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Non-Energy Positions
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RIMM - $80.48 -4.93 - Research in Motion

Lots of news on RIMM and all positive but the stock still took a $3 hit on Friday. RIMM is holding near its high set on Tuesday but it deserves a rest.

For initial commentary see the July 1st newsletter.

Earnings schedule: Sept 27th.

Breakdown trigger: $56.00 hit 6/25

Call spread pre-split:
Position: LONG 2009 $180 LEAP Call VHO-AP @ $32.60
Position: SHORT 2009 $230 LEAP Call VHO-AF @ $10.47

Call spread post-split:
Position: LONG (3) 2009 $60 LEAP Call VHO-AL @ $10.87
Position: SHORT (3) 2009 $76 LEAP Call VHO-AU @ $ 3.62

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BSC $105.37 -3.29 - Bear Stearns *** Stop Loss $97 ***

BSC was extremely volatile last week soaring to $115.71 on Tuesday only to be sold hard all week on earnings worries and subprime news. They will report earnings on the 13th. Continue to keep the faith and we could be rewarded if they are better than the disaster everyone is expecting.

Earnings are Sept-13th.

Breakdown target $100 hit 8/06/07

Position: 2010 $120 LEAP Call YBO-AD @ $25.60

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

CFC - $18.21 -1.64 Countrywide Financial ** Stop Loss $15 **

Countrywide can't get a break and they declined to near where Bank America bought their option several weeks ago. CFC announced after the close on Friday they were laying off 12,000 workers or 20% of their workforce. This should be no surprise to anyone that a company with 61,000 employees and only 50% of the business they had six months ago would need to cut payroll. They rebounded after the bell on Friday but I believe there is still some weakness to ahead.

Breakdown target $20.00 hit 8/15/07

Position: 2010 $30 LEAP Call YJD-AF @ $7.00
 


Leaps Trader Watch List

Dropped Entries

None


New Watch List Entries
MDR McDermott
FWLT Foster Wheeler

Current Watch List

JEC - Jacobs Engineering Group

Jacobs has been on a very strong growth path and the recent market weakness has knocked it back into range. It has oil and gas exposure but it not an oil and gas company.

Company Info:

Jacobs Engineering Group Inc. is a professional services firm that focuses on providing a range of technical, professional and construction services. It provides project services, which include engineering, design, architectural, and similar services; process, scientific, and systems consulting services; operations and maintenance services, and construction services, which include direct-hire construction and construction management services. It concentrates its services on selected industry groups and markets, including oil and gas exploration, production and refining; programs for various federal governments; pharmaceuticals and biotechnology; chemicals and polymers; buildings, which includes projects in the fields of healthcare and education, as well as civic, governmental and other buildings; infrastructure and technology and manufacturing. In April 2006, its Canadian subsidiary acquired Techna-West Engineering Limited. In October 2006, it acquired W.H. Linder & Associates, Inc.

No LEAPS

Breakdown target: $57.50

Buy APR 2008 $60 Call JEC-DL

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VLO - Valero Energy

Looking to buy Valero cheap on the fall dip.

Company Info:

Valero Energy Corporation owns and operates 18 refineries located in the United States, Canada and Aruba that produce refined products, such as reformulated gasoline blendstock for oxygenate blending, gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur and ultra-low-sulfur diesel fuel, and oxygenates (liquid hydrocarbon compounds containing oxygen). It also produces conventional gasolines, distillates, jet fuel, asphalt, petrochemicals and other refined products. It markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It sells refined products through a network of approximately 5,800 retail and wholesale branded outlets in the United States, Canada and Aruba. During the year ended December 31, 2006, it sold all of its ownership interest in Valero GP Holdings, LLC. In July 2007, the Company sold its Lima, Ohio refinery to Husky Energy Inc.

Breakdown target: $62.50

BUY 2009 $70 LEAP Call VHB-AN

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COP - Conoco Phillips

I hesitate to add Conoco because of its Russian LUKOIL exposure but the company is doing everything else right. Now that it is out of Venezuela it should be more aggressive with other opportunities.

Company Info:

ConocoPhillips (ConocoPhillips) is an international, integrated energy company. The Company's business is organized into six segments. Exploration and Production segment primarily explores for, produces and markets crude oil, natural gas and natural gas liquids on a worldwide basis. Midstream segment gathers, processes and markets natural gas produced by ConocoPhillips and others, and fractionates and markets natural gas liquids, primarily in the United States and Trinidad. Refining and Marketing segment purchases, refines, markets and transports crude oil and petroleum products, mainly in the United States, Europe and Asia. LUKOIL Investment segment consists of its equity investment in the ordinary shares of OAO LUKOIL (LUKOIL). The Chemicals segment manufactures and markets petrochemicals and plastics on a worldwide basis. Emerging Businesses segment includes the development of new technologies and businesses outside the Company's normal scope of operations.

Breakdown target: $75

Buy 2009 $80 LEAP Call OJP-AP

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MRO - Marathon Oil

On July 31st Marathon announced its purchase of Western Oil Sands for $5.5 billion. This will be an immediate increase in production for Marathon of 31,000 bpd. The acquisition gives them 20% interest in the Athabasca Oil Sands Project in Alberta. The other partners are Shell 60% and Chevron 20%.

Company Info:

Marathon Oil Corporation (Marathon) is engaged in exploration, production and marketing of crude oil and natural gas worldwide. The Company operates in three segments: Exploration and Production (E&P), which explores for, produces and markets crude oil and natural gas on a worldwide basis; Refining, Marketing and Transportation (RM&T), which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, the upper Great Plains and southeastern United States, and Integrated Gas (IG), which markets and transports products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol, on a worldwide basis, and is developing other projects. During the year ended December 31, 2006, Marathon completed leasehold acquisitions totaling approximately 200,000 acres in the Bakken Shale oil play. In July 2006, it completed a natural gas leasehold acquisition in the Piceance Basin of Colorado, in Garfield County in the Greater Grand Valley field complex.

Breakdown target: $48

Buy 2009 $60 LEAP Call VXM-AL

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SLB - Schlumberger

SLB posted blowout earnings on its global services business and had only good things to say about the future.

Company Info:

Schlumberger Limited (Schlumberger) is an oilfield service company supplying a range of technology services and solutions to the international petroleum industry. It consists of two business segments: Schlumberger Oilfield Services and WesternGeco. Schlumberger Oilfield Services is an oilfield services company supplying a range of technology services and solutions to the international oil and gas industry. WesternGeco, owned by Schlumberger and Baker Hughes, is an advanced surface seismic company. Schlumberger's products and services include the evaluation and development of oil reservoirs (controlled digging, pumping and testing services), well construction and production consulting, and sale of software programs. The Company also offers storage tank and seismic monitoring services. Schlumberger Limited is headquartered in Paris, France.

Breakdown target: $86.00

Buy 2009 $100 LEAP Call VWY-AT

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TSO - Tesoro

Company Info:

Tesoro Corporation (Tesoro) is an independent petroleum refiner and marketer with two operating segments: refining, which is engaged in refining crude oil and other feedstocks at its six refineries in the western and mid-continental United States and selling refined products in bulk and wholesale markets (refining), and retail, which is engaged in selling motor fuels and convenience products in the retail market through its 460 branded retail stations in 18 states. Through its refining segment, the Company produces refined products, primarily gasoline and gasoline blendstocks, jet fuel, diesel fuel and heavy fuel oils for sale to a variety of commercial customers in the western and mid-continental United States. Tesoro's retail segment distributes motor fuels through a network of retail stations, primarily under the Tesoro and Mirastar brands.

Breakdown trigger: $45

Buy 2009 $50 LEAP Call ZGC-AJ

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PTR - PetroChina

Company Info:

PetroChina Company Limited is engaged in a range of petroleum-related activities through its four business segments: Exploration and Production, Refining and Marketing, Chemicals and Marketing, and Natural Gas and Pipeline. The activities include the exploration, development, production and sales of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sales of basic petrochemical products, derivative chemical products and other chemical products, and the transmission of natural gas, crude oil and refined products, and the sales of natural gas. PetroChina Company Limited was established as a joint stock company as part of the restructuring of the China National Petroleum Corporation (CNPC). On December 28, 2006, the Company acquired a 67% interest in PetoKazakhstan Inc. from CNPC International Limited, a subsidiary of CNPC.

Breakdown target: $130

Buy 2009 $150 LEAP Call ZJK-AJ

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XOM - ExxonMobil

I caved in and added Exxon to the list because of their performance in 2007. With 6 billion shares outstanding it takes a lot to move their stock price but they added +$30 since Sept-06.

Company Info:

Exxon Mobil Corporation (ExxonMobil) is an international oil and gas company. ExxonMobil operates facilities or market products in many countries, and explores for oil and natural gas on six continents. ExxonMobil is involved in the exploration and production of crude oil and natural gas; the manufacture of petroleum products, and the transportation and sale of crude oil, natural gas and petroleum products. ExxonMobil is a manufacturer and marketer of commodity and specialty petrochemicals, and also has interests in electric power generation facilities. In addition, the Company conducts research programs in support of these businesses.

Breakdown trigger: $81

Buy 2009 $90 LEAP Call ODU-AR

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CVX - Chevron

Company Info:

Chevron Corp. (Chevron), manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and foreign subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. Exploration and production (upstream) operations consist of exploring for, developing and producing crude oil and natural gas, and also marketing natural gas. Refining, marketing and transportation (downstream) operations relate to refining crude oil into finished petroleum products; marketing crude oil and the many products derived from petroleum, and transporting crude oil, natural gas and petroleum products by pipeline, marine vessel, motor equipment and rail car. Chemical operations include the manufacture and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant oil additives.

Breakdown trigger: $80

Buy 2009 $90 LEAP Call VCH-AR

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CNQ - Canadian Natural Resources

Company Info:

Canadian Natural Resources Limited (CNRL) is an independent crude oil and natural gas exploration, development and production company head-quartered in Calgary, Alberta, Canada. The Company's operations are focused in North America, largely in Western Canada, the United Kingdom portion of the North Sea and Offshore West Africa. In November 2006, the Company completed the acquisition of Anadarko Canada Corporation from Anadarko Petroleum Corporation. The Company's crude oil and natural gas activities are conducted in three geographic segments: North America, North Sea and Offshore West Africa. These activities relate to the exploration, development, production and marketing of crude oil, natural gas liquids and natural gas. The Company's Horizon Project has been classified as a separate segment. Midstream activities include the Company's pipeline operations and an electricity co-generation system.

Breakdown Trigger: $62.50

Buy 2009 $70 LEAP Call OKR-AN

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PBR - Petrobras

Company Info:

Petroleo Brasileiro S.A. - Petrobras (Petrobras) is a wholly owned enterprise of the Brazilian Government, which is responsible for all hydrocarbon activities in Brazil. The Company is engaged in a range of oil and gas activities. Petrobras operates in six segments: exploration and production, supply, distribution, gas and power, international and corporate. In June 2007, Petrobras announced that it completed transfer of all of the shares of Petrobras Bolivia Refinancion S.A. to YPF S.A. In March 2007, the Company, Braskem S.A. and Ultrapar Participacoes S.A. announced the acquisition of Grupo Ipiranga. In September 2006, the Company announced the closing of the acquisition by Petrobras America, Inc. (PAI), its wholly owned subsidiary in the United States Gulf of Mexico, of 50% of Pasadena Refining System Inc. In June of 2006, it completed the acquisition of 66% of Gaseba Uruguay-Grupo Gaz de France S.A.

Breakdown Trigger: $55

Buy 2009 $60 LEAP Call VDW-AL

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DO - Diamond Offshore

Company Info:

Diamond Offshore Drilling, Inc. (Diamond Offshore) provides contract drilling services to the energy industry worldwide and is also engaged in deepwater drilling with a fleet of 44 offshore drilling rigs. The Company's fleet consists of 30 semisubmersibles, 13 jack-ups and one drillship. The Company offers a range of services worldwide in various markets, including the deep water, harsh environment, conventional semisubmersible and jack-up markets. The Company provides offshore drilling services to a customer base that includes independent oil and gas companies and government-owned oil companies.

Breakdown Trigger: $93

Buy 2010 $100 LEAP Call VCT-AT

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CLB - Core Labs

Company Info:

Core Laboratories N.V. (Core Lab) is a provider of reservoir description, production enhancement and reservoir management services to the oil and gas industry. These products and services are directed toward enabling the Company's clients to improve reservoir performance and increase oil and gas recovery from their producing fields. It has over 70 offices in more than 50 countries. Core Lab derives its revenues from services and product sales to clients in the oil and gas industry. Its reservoir optimization services and technologies are interrelated and are organized into three complementary segments: Reservoir Description, which encompasses the characterization of petroleum reservoir rock, fluid and gas samples; Production Enhancement, which includes products and services relating to reservoir well completions, perforations, stimulations and production, and Reservoir Management, which combines and integrates information from reservoir description and production enhancement services.

Breakdown Trigger: $104

Buy 2009 $110 LEAP Call ZYM-AB

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FXI - China Ishares (includes CEO, SNP and PTR)

ETF Info:

iShares FTSE/Xinhua China 25 Index Fund (the Fund) is an index fund that seeks investment results that correspond generally to the price and yield performance of the FTSE/Xinhua China 25 Index (the Index). The Index is designed to represent the performance of the largest companies in the Chinese equity market that are available to international investors. The Index consists of 25 of the largest and most liquid Chinese companies. Securities in the Index are weighted based on the total market value of their shares. Each security in the Index is a constituent of the FTSE All-World Index. All of the securities in the Index trade on the Hong Kong Stock Exchange. The Fund invests in a representative sample of securities in the Index, which have a similar investment profile as the Index. From its inception, on October 5, 2005, through July 31, 2005, the Fund returned 14.57%, while the Index returned 15.3%.

Breakdown Trigger: $130

Buy 2009 $150 LEAP Call VHF-AZ

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SPW - SPX Corp

Company Info:

SPX Corporation is a global multi-industry manufacturing company. The Company provides flow technology, test and measurement products and services, thermal equipment and services, and industrial products and services. The Company's infrastructure-related products and services include wet and dry cooling systems, thermal service and repair work, heat exchangers and power transformers into the global power market. The Company has four business segments: Flow Technology, Test and Measurement, and Thermal Equipment and Services, and Industrial Products and Services. In October 2006, the Company sold its Dock Products business to management of Dock Products and an affiliate of Wynnchurch Capital, Ltd. SPX Dock Products, based in Carrollton, Texas. In December 2006, the Company acquired Aktiebolaget Custos within its Flow Technology segment. In April 2007, the Company completed the sale of its Contech business unit to Marathon Automotive Group, LLC.

Breakdown Trigger: $80

Buy 2009 $90 LEAP Call OWM-AR

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APA - Apache Corporation

Apache was upgraded to 5 stars by Morningstar in late August.

Company Info:

Enercom presentation

Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. In North America, the Company's exploration and production interests are focused in the Gulf of Mexico, the Gulf Coast, East Texas, the Permian Basin, the Anadarko Basin and the Western Sedimentary Basin of Canada. It has interests in onshore Egypt, offshore Western Australia, offshore the United Kingdom in the North Sea (North Sea), and onshore Argentina. Its segments are the United States, Canada, Egypt, Australia, the North Sea and Other International. The Company also holds interests in many of its United States, Canadian and other international properties through operating subsidiaries, such as Apache Canada Ltd., DEK Energy Company (DEKALB), Apache Energy Limited (AEL), Apache International, Inc. and Apache Overseas, Inc. On January 6, 2006, the Company completed the sale of its 55% interest in the deepwater section of Egypt's West Mediterranean.

Breakdown trigger: $70

Buy 2009 $80 LEAP Call OWF-AP

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MDR - McDermott International

I would like to get an entry to MDR close to the 100-day average but short of a catastrophe I doubt it will happen.

Company info:

McDermott International, Inc. (MII) is an engineering and construction company with specialty manufacturing and service capabilities. MII is the parent company of the McDermott group of companies, which includes J. Ray McDermott, S.A. (JRMSA) and its consolidated subsidiaries; McDermott Holdings, Inc. (MHI) and its consolidated subsidiaries; McDermott Incorporated (MI), a subsidiary of MHI, and its consolidated subsidiaries; The Babcock & Wilcox Companies (B&WC), a subsidiary of MI; BWX Technologies, Inc. (BWXT), a subsidiary of B&WC, and its consolidated subsidiaries, and The Babcock & Wilcox Company (B&W), a subsidiary of B&WC, and its consolidated subsidiaries. MII is a worldwide energy services company operating in three business segments: Offshore Oil and Gas Construction, Government Operations and Power Generation Systems. In July 2007, JRMSA acquired Secunda International Limited.

Breakdown trigger: $85

Buy 2008 $100 LEAP Call OYZ-AT

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

FWLT - Foster Wheeler

This is a long shot but a great entry if we can get it.

Company Info:

Foster Wheeler Ltd. operates through two business groups, which also constitute its segments: Global Engineering and Construction Group (E&C Group), and Global Power Group. The Global E&C Group designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, and chemical and petrochemical, pharmaceutical, biotechnology and healthcare facilities and related infrastructure, including power generation and distribution facilities. Global Power Group designs, manufactures, and erects steam generating and auxiliary equipment for electric power generating stations and industrial facilities worldwide. On April 7, 2006, the Company completed the purchase of the remaining 51% interest in MF Power S.r.L., a joint venture that was 49% owned by the Company's Global E&C Group prior to the acquisition.

Breakdown trigger: $100

BUY 2009 $120 LEAP Call ZHF-AY
 


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