Option Investor

Weekly Newsletter, Saturday, 09/29/2007

Printer friendly version

Table of Contents

  1. Commentary
  2. Changes in Portfolio
  3. Portfolio Listing
  4. New Plays
  5. Existing Plays
  6. Watch List

Leaps Trader Commentary

It's Not Easy Being Flat

Take that title and sing it to the tune of Kermit the Frog and his "Not Easy Being Green" song. It is the same frustration we have been feeling for several weeks and even more so this weekend after crude teased us with a -$4 midweek dip. On Wednesday I was thinking the correction was underway and $70 oil was in our future. Then the short squeeze on Thursday erased that dip and added another couple bucks to the contract high. It's not easy being flat!

Friday's close saw a -$2 drop on end of quarter profit taking knocking crude back below $82. If I am right about the Wednesday/Thursday short squeeze as being funds dressing up their portfolios ahead of the quarter end then next week could be exciting.

Storm Tracks

As of 4:PM on Friday there were three active storms around the Gulf and none were threatening to shutdown production. Storm activity has increased several hundred percent in recent weeks but the conditions for a showstopper don't currently exist. Storm Lorenzo has blown itself out over Mexico and by midnight Friday it no longer appeared on the hurricane charts. Tropical storm Karen was still heading north several hundred miles east of Puerto Rico and appeared it would miss the Gulf and even Florida entirely. Tropical storm Melissa was well east of Karen and just coming off the western coast of Africa. It too was headed northwest and apparently going to miss the Southern United States although Melissa's track was migrating further towards the west than Karen. Either of these storms could change direction westward but neither has the intensity to do any harm in their present form. That could change if the direction changed to warmer waters but we will wait until that happens to worry. With the peak hurricane season drawing to a close the potential for a monster storm to roar through the gulf is dropping as each day passes. With that falling potential goes the potential for higher crude prices. Does that sound like a broken record?

India demanded that OPEC increase production even further or they would put their exploration for new oil and gas reserves and oil alternatives on a "war footing." India said the current prices were too high to be sustained by developing nations.

Venezuela went on the defensive last week after OPEC cut their quota to 2.47 mbpd from 3.22 mbpd. The problem stems from Venezuela's falling production. Since Chavez fired all the oil workers in 2003 and nationalized the rest of the oil fields in 2006 the rate of production has been falling. Chavez claims they can produce 3.2 mbpd but recent production levels have fallen below 2.4 mbpd. OPEC adjusted their quota to their actual output and gave the additional production to the rest of the OPEC nations that actually had spare capacity. Chavez is livid and plans to file a formal protest at the November OPEC meeting. It won't do him any good since he has been regulated to the status of loud mouth troublemaker. OPEC does not want to make waves in the global arena and Chavez is thrashing about furiously. Since he is not investing any of his oil proceeds back into production and exploration his output will eventually fall even further. He has implemented price controls on food and is rationing some items like chickens. The civilian population is becoming increasingly hostile and his reign appears doomed. His weekly TV show ran a record eight hours last Sunday and he addressed topics like prohibitions on breast implants.

Iran's production quota was also cut by 293,000 bpd as well as cut on Nigeria's of 143,000 bpd. Saudi Arabia was also cut by 156,000 bpd, which was a big surprise. OPEC claims it is making the new quotas more inline with actual production capabilities. That cut on Saudi Arabia is a real shocker. Algeria saw their quota rise by 463,000 bpd due to their increased output capability.

In the output table released by OPEC this week there are some interesting surprises. The boxes in brown are reductions in prior quotas to lower levels as of November 1st. They were reduced because they were unable to reach their old quotas. Note the difference in output in August compared to their quota. With oil over $80 per barrel every OPEC member should have been racing to pump every barrel allowed and a lot of barrels they were not authorized to pump. Seeing that these countries could not even meet their quotas at $80 oil is a reality check for the "we have plenty of oil" crowd. Note also that the entire output from the OPEC-10 was over 1 mbpd under the production target of 28 mbpd. Also note in the far right column that Saudi Arabia is the only country with any material excess capacity. On the bottom of the list Angola and Iraq do not have any quotas and can pump flat out with no restrictions. It should also be noted that OPEC relied on outside sources for actual production numbers for August. That really ticked off several nations who have constantly claimed higher output to maintain their status in the OPEC hierarchy.

New OPEC Quotas as of Nov-1st (Source: OPEC)

The obvious question is where would the excess capacity come from if demand suddenly exceeded supply. Since five of the OPEC-10 could not even make the prior quotas due to falling production the numbers in the excess capacity column are wishful thinking at best and should not be relied upon. To put the entire chart in perspective we should assume the new Nov-1st quota numbers to be full production for everyone but Saudi Arabia. Saudi should be the only excess production that can be reasonable sure of being there when it is needed and that is also questionable. If Saudi was not even pumping at their quota in August what does that say about their claimed spare capacity? Reportedly Saudi argued for a 1-mbpd increase for OPEC on Nov-1st and the +500K increase was a compromise. Since only four OPEC members other than Saudi had any real spare capacity and that totaled only 0.446 mbpd that meant Saudi would have gotten nearly the entire +500,000 bpd of that additional increase. But they were not even pumping at quota before the meeting? This is very strange indeed. You wonder if they were only going through the motions arguing for the increase to keep up their appearance as having lots of extra capacity? We know Saudi is supposed to be bringing an additional 500,000 bpd of light crude online early in 2008 and they are spending something in the range of $20B to $50B (the numbers are all over the board) to raise production capacity to 12 mbpd by 2009. If their current claimed capacity is 10.91 mbpd that means they are spending a LOT of money to only produce a 9% increase. Several oil analysts claim that increase will only be enough to offset declines in other Saudi fields by 2009. If that is true and the excess capacity numbers for everyone else on that chart are true then we are very close to that Peak Oil event. The IEA expects crude demand to increase by 2.2 mbpd annually in 2008 and 2009. That leaves little room for error in 2008 and puts us in a deficit in 2009.

A senior OPEC official was in the news on Friday saying market fundamentals don't support $80 oil and backwardization would continue to push prices lower. Backwardization is when future month contracts for crude are selling for less than the current month contracts. This encourages refiners to use up current supplies and contract for more using cheaper future month contracts and ignore the current front month contracts with higher prices. Historically this pushes current month prices down sharply until the current month sells for less than future months. Refiners keep weeks of oil supplies on hand. According to the EIA last week there were 173 days of supply on the Gulf Coast, 52 days on the West Coast, 64 days in Midwest and 15-18 days in the Rockies, Cushing and the East Coast. That means they can contract 2-3 months out and save several dollars per barrel. In reality they contract many months in advance and only resort to the spot market when it is not in backwardization.

Crude 14 Months Out

Earlier last week Jim Ostroff, a writer for the Kiplinger Letter, was predicting that $80 oil was about to become history for 2007 and could trade in the low 60s by December if there are no hurricanes in the Gulf. While I don't believe that has a chance in hell of happening it is a view making the rounds. John Kilduff, SVP with Man Financial, said prices would come off as hedge funds reduce their exposure to energy over the next few weeks. The crack spread for refiners is shrinking rapidly and with that shrinkage is the need to buy oil cheaper. Refiners raking in the money when spreads are high can afford to pay high prices. When those spreads shrink so does the interest in buying high priced oil.

Part of the pressure on oil prices has been the fear of escalating tensions over Iran. On Friday Russia and China said they would not support further sanctions on Iran until after the IAEA report in December. That postpones any further hostility until sometime in early 2008 and removes Iran as a prop for oil prices until early 2008.

Gasoline demand continues to fall and is accelerating sharply to the downside aided by higher prices.

EIA Gasoline Demand Chart

I am going to continue avoiding buying the top in oil as I see it today. I reviewed our targets on the watch list and adjusted some but I am keeping them low and where I expect those stocks to trade in the coming months. Oil will eventually correct. Maybe not next week but it will correct. It is driven by supply and demand and we are rapidly crashing towards the fall lows in demand. Refineries will be shutting down to convert to winter fuels and crude supplies will build ahead of the winter heating oil runs. Unless we have a sudden blast of artic air that lasts for months the normal fall cycle will arrive in some fashion. Be patient.

November Crude Futures Chart - Daily

November Natural Gas Futures Chart - Daily

October Gasoline Futures Chart - RBOB Daily


Changes in Portfolio

New Plays
XLE $74.95 Energy Spyder - PUT *** stop at $76.50 ***

Dropped Plays


New Watch List Plays Triggered


Portfolio Listing & Top Picks

New Plays

Most Recent Plays

XLE $74.95 Energy Spyder - PUT *** stop at $76.50 ***

This put was triggered Monday at the open and Thursday's spike failed to hit our stop. This is setting up well for a drop below $74 next week.

Breakdown Trigger: $74.75 hit 9/25/07

Position: Dec $73 Put XBT-XU @ $3.20

Play Updates

Existing Plays

MDR - $54.08 -0.66 McDermott International

No news on McDermott and it continued to hold the high ground. Be sure to enter the insurance put if our trigger is hit.

Insurance put: Buy the NOV $50 Put MDR-WJ on MDR at $52.50

Breakout trigger: $53, hit 9/20

Position: 2009 $60 LEAP Call OYZ-AL @ $9.00


UPL $62.04 +4.17 - Ultra Petroleum *** Stop Loss $52 ***

Ultra rocketed higher on news they sold their oil properties in Bohai Bay China for $223 million. The sale of this non-core asset provides additional cash for operations and more importantly allows Ultra to concentrate full time on developing the Pinedale gas field. That is the second largest gas field in the US and Ultra is the major landowner. Expect some profit taking when the news wears off.

Ultra Petroleum presentation

Breakdown target: $52.50 Hit 8/30

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


CHK $35.26 -0.30 Chesapeake Energy

CHK was in the news again for insider trading. Good news, they were buying shares at market rates! CEO Aubrey McClendon bought another 25,000 shares at $35 each. Go Aubrey!

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


HP $32.83 -1.71 Helmerich & Payne *** Stop Loss $27.50 ***

HP pulled back a little on no news. Services stocks saw some selling as if investors were anticipating a correction in oil prices. No change in play

Enercom presentation here

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


HERO $26.11 -1.77 Hercules Offshore ** Stop Loss $24.00 **

No news and more weakness but it was sector related not specific to HERO. Maintain the stop at $24.

Enercom presentation

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


GLBL $25.76 +0.20 Global Industries ** Stop Loss $18.50 **

No news and Global continues to creep higher. It would be really nice for a trigger event to appear and push us over that $26.50 resistance. No change in play.

Enercom presentation

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


BHP - $79.60 +6.07 BHP Billiton ** Stop Loss $60.00 **

Another week, another $6 gain! The new CEO for BHP gave a rousing forecast for continued growth in mining demand fed by China, India and the rest of the emerging economies. He said demand was solid for as far as he could see into the future. He said shortages in supply would keep prices high for years to come.

Breakdown target: $55 hit 8/15/07

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


CCJ - $46.24 +2.35 Cameco ** Stop Loss $30 **

Nice gain on no specific news. The first application for a nuke plant in the US in 30 years is keeping buyers interested in CCJ. Reportedly many more applications will be filed over the next 18 months. No news and no change in play.

Breakdown target: $35 Hit 8/16/07

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

Non-Energy Positions

IWM $80.04 -.92 Russell 2000 iShares ** Stop Loss $78.50 **

The slide in the Russell and the potential slide in the broader market next week prompted me to raise the stop on this position. The post Fed takeoff ran out of fuel and the quarter ended with a fizzle rather than a surge. I would close this today but there is that slim chance that the market could continue higher on new buying. Maintain the new stop.

Position: Jan $80 Call IOW-AB @ $4.25


RIMM - $98.55 +5.37 - Research in Motion

RIMM tacked on another $5 on no specific news. The earnings date changed to Oct 4th so next Thursday should see another sprint high if RIMM surprises as expected. We are pretty close to full value on this play so I expect to exit soon. We need some of the excess premium to bleed from the $76 short calls as they move farther into the money and we will exit.

For initial commentary see the July 1st newsletter.

Earnings schedule: Oct 4th

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


BSC $122.81 +5.49 - Bear Stearns *** Stop Loss $97 ***

BSC rocketed higher on a report in the NYT that a major investor like Warren Buffet was considering a 20% stake in BSC. The report turned into a rumor then into thin air leaving the various reporters holding the bag. CNBC ate crow and the stock vacillated wildly. In the end BSC closed on an uptrend for the week and we are not complaining. If one of our readers can get another rumor started next week we might actually get over $135 and a new 2-month high.

Breakdown target $100 hit 8/06/07

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


CFC - $19.01 -.60 Countrywide Financial ** Stop Loss $15 **

We need somebody to start a rumor that Warren Buffet is thinking about buying CFC to get this stock out of its doldrums. The subprime mess is winding down at least in its importance to the financial health of the companies concerned. We may have to wait for the CEO to appear on CNBC again and claim they are gaining market share and business is booming before the new uptrend will begin. I considered an exit but we have a couple years to go and it could be back at $40 once the rebound begins. We have to be patient as the chops around here at the BAC convertible price.

Breakdown target $20.00 hit 8/15/07

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

Leaps Trader Watch List

The refiners are getting close to a breakdown. I actually revised the trigger lower on TSO. Watch MRO and TSO as the first entries we could get. I also changed the trigger and strike on NOV which split 2:1 after Friday's close according to their press release. It has yet to be reflected in the options chains. I adjusted triggers on several others so be sure to check any you are considering for positions.

Dropped Entries


New Watch List Entries

None - See Note

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.


Breakdown target: $66.00

Buy APR 2008 $70 Call JEC-DN


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


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. COP announced a new $15 billion buyback at the end of September.

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: $80

Buy 2009 $90 LEAP Call OJP-AR


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: $52

Buy 2009 $60 LEAP Call VXM-AL


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: $95.00

Buy 2009 $100 LEAP Call VWY-AT


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: $43

Buy 2009 $50 LEAP Call ZGC-AJ


PTR - PetroChina

The last correction on PTR knocked $40 off the price. I know it sounds stupid to keep a $150 price target on a $185 stock but that $40 gain took less than 2 weeks and it can come down even faster than that.

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: $150

Buy 2009 $160 LEAP Call ZJK-AL


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: $85

Buy 2009 $90 LEAP Call ODU-AR


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: $87

Buy 2009 $100 LEAP Call VCH-AT


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: $66.00

Buy 2009 $70 LEAP Call OKR-AN


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: $64

Buy 2009 $70 LEAP Call VDW-AN


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: $98

Buy 2010 $110 LEAP Call VCT-AB


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: $110

Buy 2009 $120 LEAP Call ZYM-AD


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: $150

Buy 2009 $160 LEAP Call VHF-AU


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: $84

Buy 2009 $90 LEAP Call OWM-AR


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: $80

Buy 2009 $90 LEAP Call OWF-AR


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: $115

BUY 2009 $130 LEAP Call ZHF-AX


NOV - National Oilwell Varco

We want to enter this new position after the 9/28 2:1 split. I am putting the target at $70 to start.

Company Info:

National Oilwell Varco, Inc. (NOV) is a worldwide provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The Company operates in three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services. The Rig Technology segment designs, manufactures, sells and services complete systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating supplies, and spare parts. In March 2006, NOV acquired Soil Recovery A/S. In November 2006, it acquired Rolligon Ltd. In December 2006, it acquired 87% of NQL Energy Services Inc.

Breakdown Trigger: $70

Buy 2008 MAY $80 Call NOV-EP (symbol may change with split)


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.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives