Option Investor
Newsletter

Weekly Newsletter, Saturday, 05/03/2008

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Table of Contents

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

Leaps Trader Commentary

Sharp, Fast and Scary

Those terms are usually reserved for bull market corrections. In the oil market they justly apply to those monster short squeezes like we saw on Friday. The shorts had just loaded up for a long drop from $120 on positive oil news from around the globe. Just when they had settled in to a series of three negative days lightning struck. It came in the form of new month end money buying the dip to $110 and news that Turkish jets were bombing Kurdish rebel bases in northern Iraq. Fears of an oil stoppage in the northern Iraq pipeline that crosses Turkey were almost instantaneous. The momentum players looking for a dip to buy saw the rebound and jumped back into the game. The shorts were crushed once again. A $4 single day move in crude futures is sharp, fast and scary if you are on the wrong side.

The weekly inventory report was bearish for prices despite a 7th consecutive weekly drop in gasoline inventories. Crude gained for the second week despite a strong uptick in refiner utilization. $3.60 gasoline has been a drag on consumers with demand falling -1.5% for the month. It is just temporary and once drivers get over the sticker shock the demand will pickup again. We have been through this cycle many times where gasoline spikes 50-75 cents and then declines slightly. Once the shock wears off there is another spike to a new level. Consumers need to just get used to it. On both coasts gasoline is being seen over $4 with more frequency and we are not even into the high use season yet. National gasoline prices have risen $1.40 per gallon over the last 18 months. I ran this picture in the Option Investor commentary this weekend but I am going to repeat it here.

Palo Alto California May 1st Prices

Weekly EIA Inventory Levels

There was some conflicting news out of OPEC on Friday. The OPEC president has said repeatedly that there would not be a production meeting before September. The Kuwaiti oil minister said that OPEC may hold an extraordinary meeting on oil prices before September and did not rule out higher production. However, Libya's oil minister Chukri Ghanem then repeated his claim that OPEC countries cannot pump more oil because they have no spare capacity other than Saudi Arabia's. Ghanem has been fairly vocal of late in contradicting any OPEC related speaker that talks about increasing production. He has repeatedly said it is a baseless threat and meant only to calm those in the West alarmed by high prices. Based on the news I get I believe him. The spare capacity numbers reported monthly never seem to change but the production numbers continue to decline. Since OPEC members have displayed their lack of ethics in the past by cheating on production whenever possible it would make sense they would cheat today at $120. Those that can cheat are already doing it and those that can't are watching helplessly as their production drops. Even OPEC itself has to rely on production numbers from outside OPEC to police the group. OPEC management does not trust the numbers presented by its members either.

A long time subscriber sent me the latest numbers for gasoline prices around the world. (Thanks John!) The column on the left is the top ten highest priced countries after doing the conversion from liter to gallon and allowing for currency conversions. That makes our $3.60 per gallon last week look rather cheap. However, the column on the right is the cheapest places for gas and it should come as no surprise that they are all subsidized countries. Part of their oil wealth goes back into providing cheap fuel to help grow their economy. This cheap fuel is causing another problem and that is rapidly escalating demand. The OPEC nations themselves account for nearly 600,000 bpd of 2008 demand growth. That is more than the production from the entire Shaybah field (500,000 bpd) Saudi Arabia just spent $10 billion to bring into production. At the rate of demand growth in OPEC they will need another field of that size every year. Odds of that happening are zero. They will eventually have to quit subsidizing fuel costs to slow demand and as we know from Iran the consuming public will not be happy. Civil unrest is growing daily because of it. Subsidized gasoline is a way to pacify the people with a much lower standard of living than the kings and sheiks. Eventually that will end and it will not be pretty.

We are hearing calls from aspiring politicians to remove the Federal gasoline tax, 18.4 cents for gasoline and 24.4 cents for diesel. McCain is calling it a tax holiday and suggests removing the tax between Memorial Day and Labor Day. He was the first to come out with the suggestion. Clinton jumped on the bandwagon with her own plan only she wants the oil companies to pick up the tab with a windfall profits tax. Either way it is a bad idea. Cutting the cost of fuel will only encourage extra consumption at a time when too much consumption is causing the problem. Europe went the other way years ago by heavily taxing fuel to kill demand and promote mass transit. A politician would be committing suicide to suggest raising the tax to $1.00 or $1.50 per gallon but it would be the right thing to do if you really wanted to cut consumption, force downsizing of automobiles and reduce dependence on foreign oil.

Another option has been getting some press and that is to sue OPEC for price manipulation. There is also talk of going after OPEC on antitrust rules through the World Trade Organization (WTO). WTO rules prohibit quotas as a method of limiting exports. While this sounds like a good idea on the surface it could have unintended consequences. If OPEC members were free to do as they wanted only a couple countries could really pump more oil but others are still constrained by capacity. If the WTO tried to breakup OPEC then countries could limit investment into new production so they could not be made to pump more. It would still produce higher prices and there would be no governing organization to police the group. The absence of OPEC quotas could actually create more volatility in prices since there would be no ruling body to level out the flows. The swings from highs and lows could be huge with seasonal demand issues left unmanaged. OPEC does provide a useful function to keep track of capacity and plan on increasing that capacity to cover growth. Spare capacity is critical to taking out the severe price fluctuations caused by various events like strikes, hurricanes, equipment malfunctions, civil unrest and wars.

Today's high prices are not a function of not enough oil in the system. It is a function of not enough light sweet crude and not enough refiners to refine other grades of crude. There is plenty of heavy, sour crude to go around. If there were 2-3 more large heavy crude refineries around the world there would the prices for all grades would be cheaper. The various OPEC countries either by themselves or in conjunction with other countries have plans in motion to build nearly 2 mbpd of new refineries over the next 5-8 years. Most of those refineries will be able to process heavy, sour crude. The key here is that demand will grow by more than 1.8 mbpd each year and those refineries will already be insufficient when they are completed. After 2010 there will not be enough oil of any type to fuel them so the entire point is mute.

It's official, Russia again pumped less oil in April than they did in March, -0.4%, and less than April 2007, -0.8%. Production fell to 9.72 mbpd due to aging oil fields, rising costs and increasingly remote new deposits. They are still the second largest global producer behind Saudi Arabia.

The major oil companies on this side of the pond are having the same problem. Chevron reported earnings and confessed that production has fallen year over year by 44,000 bpd. Exxon reported its biggest profit ever at $10.9 billion but confessed that oil and gas production fell sharply, -5.6%, from the comparison quarter. Crude production fell almost 10% as higher country taxes required a greater portion of oil to host governments. Venezuelan nationalism of its facilities also caused a drop in Exxon production. Declines in production in Canada also hurt total production. Exxon is having such a tough time finding and producing new oil that they are resorting to stock buybacks to support the stock price. Their recently announced $8 billion buyback dwarfs their $5.5 billion spending on capex and exploration. That is drawing fire from U.S. House members.

Exxon repeated its claim that current fundamentals value oil at only $60 per barrel. They are analyzing future projects with the assumption of $60 oil. BP is also using $60 oil for their project analysis. Why are the two largest private oil companies still stuck at $60? Maybe because it is politically expedient to do so. Maybe because there is the technical possibility for there to be 3 million barrels per day of excess capacity in Q4 of 2008. They are expecting prices to implode as we get closer to that new production. There are several new oil platforms coming online plus three new fields in Saudi Arabia. It will probably be early 2009 before it really happens given the normal delays in these major projects. The longer they delay the less relevant that new production becomes. Every year that passes see an increase in demand of around 1.6 mbpd and a decline in existing production due to depletion of around 4.5 mbpd. We are not finding and producing an extra 6.1 mbpd of crude each year so we know how this story ends. The new production coming online in 2008 and 2009 will be insufficient to meet demand in 2010. This is the end of the story. No amount of political wrangling or OPEC posturing will make more oil appear two years from now.

Here is the global outlook for new supply as compiled by dozens of researchers around the world for the Megaprojects database. Note the large spike in 2008-2009 mainly from the addition of the new Saudi Arabia production, Brazil, Canadian oil sands and Angola. The fate of the oil sands is in doubt given the declining supply of natural gas, which is needed to heat the sands, and the new environmental rules that could halt new production.

Percentage of new supply by country

It takes 5-7 years to bring a new field online. Sometimes as long as 7-10 years for a complicated offshore field. All the new production that should come online from 2012-2017 should already be known. Unfortunately as you can see from the megaprojects graph above the drop off in new supply after 2012 is huge. You can bet there will be some smaller fields show up later with a faster startup time but the really big ones like the new Tupi field in Brazil may not enter full production until 2017-2020. Nearly all the new major finds are in seriously unsuitable conditions. They either suffer from environmental hardships like the 6 mile deep fields off Brazil or political hardships like the nationalism purges in Russia and Venezuela or both. Either way those new finds will be slow to come to market if at all.

That is the end of my peak oil rant today. I get so fired up I can't stop typing.

The Minnesota House passed a Peak Oil resolution last week by a measure of 81-7. The resolution called for the Legislature and the Governor to draw up plans for coping with peak oil. The resolution called for the Governor to "recommend funding, give direction to state departments and develop a response plan as soon as possible." Evidently the Minnesota House has been reading unapproved material. Didn't they know anybody in office is not allowed to do their own research? How dare them actually acknowledge the situation and ask for a disaster plan ASAP. Maybe there are some people in elected office that are not asleep at their desks or completely focused on pork barrel politics.

You may have seen all the press the airlines received last week after EOS filed for bankruptcy and Aloha Airlines stopped its freight service just as suddenly as it stopped its passenger service last month. The airlines claim they need to raise ticket prices 25-40% to cover fuel costs. They announced their 11th rate hike for 2008 last week. They are cutting flights and estimates are for a reduction in seats by 20% by this time next year. They are parking planes, Delta 20 full size and 70 regional jets and United is parking 30 planes just to name a couple. Routes are getting slashed with all the airlines announcing cancellation of routes. These are just the start of the headlines. OPEC's president said this week that prices could go to $150 or even $200 if demand does not slow. At $150 oil you will have six U.S. airlines. At $200 you might have two survivors. Air travel will not longer be a bargain but a very expensive luxury.

The chief economist for the International Energy Agency (IEA) Faith Birol was interviewed last week. He has gone on record that oil supplies are depleting at a faster rate then previously thought and new supplies are slowing. He predicted a disaster by 2015 is something is not changed immediately. When the IEA's latest "World Energy Outlook" was released in November the world was shocked by the abrupt change in posture. The IEA has long held that there was plenty of oil through 2030 or even 2050 if sufficient investment was available to search for it. The sudden change in posture has made Birol an unpopular person. The following comments were edited from his public interview.

Astrid Schneider:
Mr. Birol, in your "World Energy Outlook" which was published in November 2007 the IEA has warned for the first time that there could be a slump in oil production and escalating prices in the time from now to 2015. The reason you give is that there has been to little investment in oil production.

Fatih Birol:
Indeed. There are three reasons why that is so. The first one is the increasing demand, mostly from China, India and the Middle Eastern countries themselves. These countries are the main reason for the increasing oil consumption. Even if there should be a recession in the USA, this would not slow those countries down much, because India and China have a strong internal economic growth, while high oil prices will help the economy in the Middle East. The demand for oil will therefore remain high.

Schneider: The second reason ...?

Birol: ... is, that we see a sharp decline in production from the existing oil fields, especially in the North Sea, the USA and many non-OPEC countries. Even here money should be invested, to slow down that decline. The third reason why we expect a risk for overall production is, that we looked at all oil exploration projects around the world: 230 altogether, in Saudi-Arabia, Venezuela, the North-Sea, everywhere. Even if all those projects which are already funded will be implemented, the overall capacity they can bring for new oil production is too little.

Schneider:
How much is missing?

Birol:
Exactly 12.5 million barrels a day are still missing, about 15 % of the global oil demand (the current global oil consumption is 84 million barrel a day, note from the editor). This gap means that we could face a supply shortage and very high prices during the next years.


I will forward the balance of the interview in an email on Monday. It is far too lengthy to reprint in its entirety here. The comment Birol makes about a 12.5-mbpd shortage in 2015 is a clever way of NOT saying that there will be a shortage in 2010. We are not going to suddenly wake up some day and be 12.5 mbpd short. It will start with 500,000 bpd then a million then 1.5 mbpd, etc. All hell will break lose when that first shortage appears not in 2015. Actually we will have problems just getting to that first shortage due to the nature of oil supplies. As we get closer to an actual shortage we will experience intermittent tight supplies and these will get progressively worse until they become permanent.

I am asked constantly about investing in oil futures. I buy the emini contracts for trades but I can't recommend you do that for long term holds. Because futures can go against you just like they can move in your favor you have to buy at the absolute lows in order to have any kind of safety. You cannot just tough it out knowing that in 2010 oil could be $200. It could also be $80 sometime in the near future and your $110 futures would be in Warren Buffett's terms, "financial weapons of mass destruction." If you want to buy and hold futures you need to buy ONLY on sharp corrections and then be very faithful with your stop losses.

Last week's $10 drop in oil prices and some earnings misses in the energy sector knocked us out of some positions but put us into some others. I resolved after the prior correction to be faithful on keeping the stops tighter so that is the pain we must go through whenever oil corrects.

I am changing the way I list stops. I am no longer going to list them in the play description. They will only be on the portfolio listing.

I also received some questions on why I am adding so many spread trades. That is buying a LEAP close to the money and selling one well out of the money. The reason is simply risk. With oil so volatile the price of these LEAP calls is out of sight. By selling a short call against our long call we are reducing our cost in the long call by 30-50% while giving up little in potential profits. If you do not want to do the spread just buy the long call. If money is tight you may want to move out a couple of strikes to reduce the premium. Just remember those well out of the money strikes will drop like a rock in price should a correction appear.

Jim Brown


Sign of the times cartoon

June Crude Futures Chart - Daily

June Natural Gas Futures Chart - Daily

May Gasoline Futures Chart - RBOB Daily

 


Changes in Portfolio

New Energy Plays

Several new entries from the watch list this week


New Non-Energy Plays

None


Dropped Plays
CY Cypress Semi *** Stop Loss ***
HP Helmerich & Payne *** Stop Loss ***
CLB Core Labs *** Stop Loss ***
UPL Ultra Petroleum *** Stop Loss ***
MDR McDermott Intl *** Stop Loss ***

New Watch List Plays Triggered
PBR $124.42   Petrobras
MOS $124.63 +4.63 Mosiac
NE $58.08 +2.08 Noble Corp
RIG $151.92 +1.92 Transocean
NOV $67.20 +0.20 National Oilwell Varco

Portfolio Listing & Top Picks

***********
Top Picks
***********

If you are looking to add another position these are my top picks for this week. The target prices listed would be the ideal entry points for these stocks today. There is no assurance any stock will ever return to these support levels and you will need to make your own decision about an entry point above these levels. I believe these stocks have the best potential this week. The list will change from week to week based on technicals, fundamentals, crude prices and market action. The list is not sorted in any particular order.

I like all of these this week. Try to buy them on a dip!


 


New Plays

Most Recent Plays


PBR $124.42 - Petrobras

I added the breakout entry last week, just in case Petrobras decided to run. PBR gapped open on Monday and hit that trigger at $125.50 only to collapse with oil prices the next three days. It was not a fun way to get an entry.

Fortunately luck was with us and S&P upgraded the entire country of Brazil on Wednesday. S&P also said it may upgrade PBR specifically due to the improved economic environment. Thank you S&P.

The same day Ken Heebner was interviewed on CNBC and he pounded the table on PBR again. He has 2 million shares he bought between $88 and $95 so he is definitely sold on the company. If he can get a dollar pop out of a guest appearance that is a $2 million payday. Glad he is on our side.

** See portfolio listing for any stop loss **

Company Info:

Petroleo Brasileiro SA - Petrobras (Petrobras) is a Brazil-based holding company engaged in the exploration, production, refinement and distribution of oil and gas. The Company is involved in four business areas: Exploration and Production, Downstream, Gas & Energy and International. Petrobras has 109 production platforms and 15 refineries. It operates 31,089 kilometers of pipelines. The Company has various subsidiaries: Petrobras Quimica SA - Petroquisa, which is engaged in the production, commercialization, distribution, import and export of chemical products; Petrobras Distribuidora SA - BR, which is involved in the distribution and commercialization of oil products and natural gas, and Petrobras Netherlands BV - PNBV, which is active in the purchase, sale and rent of equipment and platforms for the production of oil and gas. Petrobras operates in Brazil, Argentina, Mexico, Portugal, the United States, Peru and Turkey, among others.

Breakout trigger: $125.50 hit 4/28

Position: 2010 $150 LEAP Call YMO-AV @ $22.10

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

MOS $124.63 + 4.63 Mosaic

Mosaic finally came to us and hit our breakdown trigger at $120. Worries that the commodity rally was over pushed the fertilizer stocks lower. They forgot that everyone who has ever been interviewed said production was over committed for the next two years with people trying to buy it even farther out. We add 75 million new people to the world's population each year and they need to eat. Of the 6.5 billion people on this earth nearly 4 billion depend on fertilizer for food. That is not likely to change given the added load of growing feed crops to make biofuel.

** See portfolio listing for any stop loss **

Company Info:

The Mosaic Company (Mosaic) is a producer of phosphate and potash combined, as well as nitrogen and animal feed ingredients. The Company operates its business through four business segments: phosphates, potash, offshore and nitrogen. The Phosphates segment operates mines and concentrates plants in Florida that produce phosphate fertilizer and feed phosphate, and concentrates plants in Louisiana that produce phosphate fertilizer. The Potash segment mines ad processes potash in Canada and the United States and sells potash in North America and internationally. The Offshore segment produces and markets fertilizer products and provides other ancillary services to wholesalers, cooperatives, independent retailers, and farmers in South America and the Asia-Pacific regions. The Nitrogen segment consists of its equity investment in Saskferco and Mosaics nitrogen sales and distribution activities.

Breakdown trigger: $120 Hit 4/29

Buy 2010 $140 LEAP Call LXW-AX @ $35.10
Sell 2010 $240 LEAP Call KCA-AH @ $13.90

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

NE $58.08 +2.08 - Noble Corp

The drop in oil prices gave us an entry at $56 and Noble declined to support at $54 before rebounding. They declared a 4-cent dividend payable on May-30th but the rebound was on positive news for deepwater drillers in general.

Noble recently won a $4 billion contract to drill for Petrobras off the coast of Brazil. This is a monster payday and just one area of exploration for Noble.

** See portfolio listing for any stop loss **

Company Info:

Noble Corporation (Noble) is engaged in contract drilling services worldwide. It performs contract drilling services with its fleet of 62 offshore drilling units located worldwide. This fleet consists of 13 semi-submersibles, three drillships, 43 jackups and three submersibles. The fleet count includes two F&G JU-2000E jackups and three deepwater dynamically positioned semisubmersibles under construction. As of December 31, 2007, approximately 85% of its fleet was deployed internationally. Its other operations include labor contract drilling services, and through November 2007, engineering and consulting services. Its operations are conducted principally in the Middle East, India, United States, Gulf of Mexico, Mexico, the North Sea, Brazil, West Africa and Canada. During the year ended December 31, 2007, Noble completed the rationalization of its technology services division with the sale of the rotary steerable system assets of its Noble Downhole Technology Ltd. subsidiary.

Breakdown trigger $56.00 hit 4/29

Position: 2010 $70 LEAP Call YVJ-AN @ $8.10

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

RIG $151.92 +1.92 - Transocean

RIG crashed with oil and rallied back with it on Friday. The correction gave us our entry at $150 although support at $145 was a little scary on Thursday.

RIG has declined slightly from its highs at $160 late in April. RIG is the premier deep-water driller and there is no scenario where they don't continue to move higher.

Earnings are Wednesday so it could be volatile!!

** See portfolio listing for any stop loss **

Company Info:

Transocean Inc. (Transocean) is an international provider of offshore contract drilling services for oil and gas wells. As of February 20, 2008, the Company owned, had partial ownership interests in or operated 139 mobile offshore drilling units. Its fleet included 39 high-specification floaters (ultra-deepwater, deepwater and harsh environment semisubmersibles, and drillships), 29 midwater floaters, 10 high-specification jackups, 57 standard jackups and four other rigs. As of February 20, 2008, the Company also has eight ultra-deepwater floaters contracted for or under construction. The Companys primary business is to contract these drilling rigs, related equipment and work crews primarily on a day rate basis to drill oil and gas wells. In November 2007, the Company completed its merger transaction with GlobalSantaFe Corporation (GlobalSantaFe).

Breakdown trigger: $150 Hit 4/29

Position:
Long 2010 $170 LEAP Call YDR-AN @ $24.00
Shrt 2010 $230 LEAP Call YDR-AW @ $8.50

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

NOV $67.20 +0.20 - National Oilwell Varco

NOV declined from its recent high at $76 to touch $64 last week and trigger our entry on the way with a stop at $67.

NOV just completed the acquisition of Grant Prideco on April 21st and the high at $76 was the next day. We are seeing the post merger letdown as the reason for this decline. This was a major acquisition for them and should be very accretive very quickly.

Zacks put out a note on Friday saying the Grant Prideco acquisition was very bullish for Varco. Varco already has a $10 billion order backlog and received $2 billion in new orders in Q1. They paid about $7.37 billion for Prideco. Prideco is the technological leader in drill pipe and bits and will fit nicely into Varco. Zacks recommended a buy on NOV with a price target of $85.

Varco announced earnings on Wednesday that increased +44% or $397 million. That was up from $275 million in the comparison quarter.

** See portfolio listing for any stop loss **

Company Info:

National Oilwell Varco, Inc. is a 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. It has three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services. The Rig Technology segment designs, manufactures, sells and services systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides 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 to drill site and production locations worldwide. In July 2007, NOV acquired, through a wholly owned subsidiary, a 76% stake in Sara Services and Engineers Private Limited. In April 2008, it acquired Grant Prideco, Inc.

Breakdown trigger: $67 Hit 4/30

Position: NOV $80 Call NOV-KP @ $5.40


 


Play Updates

Existing Plays

*******************
Energy Play Updates
*******************

CLB $122.47 -5.50 Core Labs ** Stopped $125 ***

The decline that got us into CLB the prior week continued and took us out at $125. The +16% growth in earnings was not good enough to keep investors interested. Quick out and the drop in the short call kept us to a loss of just a buck.

Breakdown trigger: $130

Position: Long 2010 $140 LEAP Call LYM-AH @ $22.50, exit 19.60
Position: Short 2010 $175 LEAP Call LYM-AU @ $12.50, exit 10.50

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

USO $93.44 -2.26 - United States Oil Fund *** Short ***

News, news news. The USO declined to $88.89 on Thursday before the end of day buy program hit. Friday's news of the Turkish bombing in Iraq just added to the short squeeze.

With the option worth only 60-cents I am willing to ride it out. Who knows we could see a return to support at $87.50.

** See portfolio listing for any stop loss **

** Target $88 for an exit **

Upside trigger: $90.00 Hit 4/15

Position: May $87 PUT UNA-QI @ $2.70

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

FLS $122.62 +11.11 - Flowserve

Outstanding! Flowserve reported earnings of $1.53 per share that crushed estimates for 94 cents. Gross margins spiked 180 basis points and Flowserve raised full year guidance nearly a buck to $6.20 on the high side. Analysts were expecting $5.39. FLS rocketed $12 on the news but gave a little back on the decline in oil prices.

** See portfolio listing for any stop loss **

Breakout trigger: $110 Hit 4/16

Position: OCT $120 Call FLS-JD @ $10.40

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

UPL $84.87 -1.48 - Ultra Petroleum *** Stopped $81 ***

Ultra dropped below support at $82 on Thursday's oil decline to trigger our stop at $81. I really hate to be out of UPL ahead of their earnings next Wednesday but maybe this is for the best. I can't imagine them missing earnings but I think we need to give it a rest before jumping back in.

The reason UPL has been rising is the new cross country pipeline to their property in Utah. Once completed they will be able to sell their gas for more money with access to the eastern markets. Ultra is on a capex program to spend $755 million in 2008 to boost production by 18-22%. They pln to boost production another 25-30% in 2009 over 2008 levels. 2008 estimates are for 135-140 BCF. They produced 117 BCF in 2007. 2009 estimates are for 170-175 BCF. 2010 estimates are for 200-205 BCF. That would be nearly double their 2007 production.

** See portfolio listing for any stop loss **

Breakout trigger: $83 Hit 4/14

Position: 2009 $90 LEAP Call OZH-AR @ $9.40, exit $6.90 5/01

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

SPWR $82.10 -4.19 - SunPower

It has not been a good 2 weeks with a $15 decline on nothing but good news. Support at $85 broke on Thursday and we came very close to being stopped then. Maintain the stop at $80.

** See portfolio listing for any stop loss **

Breakout trigger: $66 (hit 3/24)

LEAP Call Spread
Long 2010 $80 LEAP Call LMO-AP @ $20.00
Shrt 2010 $130 LEAP Call LMO-AW @ $8.70

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

CY 27.47 -.87 - Cypress Semi *** Stopped $21.50 ***

No news but our stop was hit at $27 on Thursday taking us out for a profit.

Breakout trigger: $21.50 (hit 3/24)

Position 2010 $25 LEAP Call WSY-AE @ $4.90, exit $8.20, +3.30

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

MDR - $53.16 -6.74 McDermott Intl ** Stopped $55 **

Ouch! MDR warned on Tuesday that Q1 profits would be below estimates and this high flyer crashed and burned. The multi decade winter storm in Asia shut down operations in several areas for weeks and caused them to be non billable.

Fortunately we escaped with no loss.

Breakout trigger: $51.00 (hit 3/24)

LEAP Call Spread
Long 2009 $55 LEAP Call OYZ-AK @ $8.28, exit $9.00
Shrt 2009 $75 LEAP Call OYZ-AO @ $3.10, exit $3.10

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

TS $53.91 +1.83 - Tenaris

After a $5 drop the prior week TS rebounded $4 from Tuesday's lows. Earnings are next week and there was no news.

Earnings are May 7th.

** See portfolio listing for any stop loss **

Breakdown trigger: $46.00 hit 3/19

Position: SEP $50 Call TSW-IJ @ $3.40

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

HP $54.61 -1.23 Helmerich & Payne *** Stopped $51 ***

HP reported earnings on Thursday that missed estimates by a few cents and was instantly knocked for a $3 loss. It was immediately upgraded by Capital One and rebounded +4.54 on Friday. It was too late to save our stop at $51 and we are out with a very nice profit.

Position: Jan 2009 $35 LEAP Call ZQA-AG @ $4.50, exit $16.50

Insurance put:
Position: Nov $30 HP-WF. @ .50, expired

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Non-Energy Positions
****************************

EBAY $31.11 -0.19 - Ebay Inc *** Earnings Short ***

EBAY continues to hug the flat line with no change but there is a slight change in sentiment appearing. Ebay was down -67 cents on Friday. We are only $1 out of the money and the option premium is only 32 cents. I say let it ride!

** See portfolio listing for any stop loss **

Entry 4/14 @ 30.87

Position: May $30 PUT XBA-QF @ $1.10


****************************
Covered LEAP Calls
****************************

AAPL $180.94 +11.21 Apple Inc *** Covered LEAP Call ***

No change. Over $150 we are at max profits.

Position:
Long: AAPL @ open of $177.52 (Jan-14th open)
Short: 2009 $150 LEAP Call VAA-AW @ $20.80
Breakeven: AAPL @ $136.12

Position changes:
Closed $200 LEAP Short @ $9.40 ($30.00 - 9.40 = gain +20.60)
Replaced with $150 LEAP short @ $20.80
AAPL cost basis $177.52 - $41.40 (20.60 + 20.80) = 136.12
Breakeven: AAPL @ $136.12

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

RIMM $131.92 11.88 Research in Motion

No change. We are at max profits over $110.

If we continue holding the position until January and let it get called away your profit will be $34.80 when the stock is called away for $110.

Alert entry 11/12 @ $102.60

Covered LEAP Call:

LONG RIMM @ $102.60 (cost $102.60 -9.10 $150 LEAP = 93.50)
SHORT 2009 $110 LEAP Call VHO-AB @ $18.30 on 1/14/08

Closed: 1/14
SHORT 2009 $150 LEAP Call XTB-AJ @ $18.50, close $9.40 +9.10
 


Leaps Trader Watch List

Dropped Entries

None


New Watch List Entries
JEC
Jacobs Engineering
FLR Fluor
FWLT Foster Wheeler

Current Watch List

USO - U.S. Oil Fund

This is our Hail Mary play. If we get another correction hopefully we can get long.

Breakdown trigger: $89 *** New trigger ***

Buy 2009 $90 LEAP Call OLL-AL
Sell 2009 $120 LEAP Call XNF-AP

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BP - BP PLC

Based on the recent announcements by BP it may be time to take another run at this stock. When Thunderhorse comes online in Q3 it should get a lot of press due to the high volume of oil they expect to produce. Maybe BP's troubles are over.

Company Info:

BP p.l.c. (BP) is a holding company. The Company three business segments: Exploration and Production, Refining and Marketing and Gas, Power and Renewables. Exploration and Productions activities include oil and natural gas exploration, development and production (upstream activities), together with related pipeline, transportation and processing activities (midstream activities). The activities of Refining and Marketing include the supply and trading, refining, marketing and transportation of crude oil, petroleum and chemicals products. Gas, Power and Renewables activities included marketing and trading of gas and power, marketing of liquefied natural gas (LNG), natural gas liquids (NGLs) and low-carbon power generation through its Alternative Energy business. During the year ended December 31, 2007, BP acquired Chevrons Netherlands manufacturing company, Texaco Raffiniderij Pernis B.V. In April 2008, BP registered in Russia its subsidiary BP Exploration Services.

Breakdown trigger: $68. *** New trigger ***

Buy 2010 $70 LEAP Call WAO-AN

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COP - ConocoPhillips

COP is still running and I am not going to chase them. I am going to raise the trigger slightly but just to support.

Company Info:

ConocoPhillips is an international, integrated energy company. It has six operating segments. Exploration and Production segment explores for, produces and markets crude oil, natural gas and natural gas liquids. Midstream segment gathers, processes and markets natural gas, 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. LUKOIL Investment segment consists of its equity investment in the ordinary shares of OAO 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 Companys normal scope of operations. In October 2007, American Electric Power Company, Inc. sold its 50% interest in the Sweeny Cogeneration plant in Texas to ConocoPhillips.

Breakdown trigger: $83 *** New Trigger ***

BUY 2010 $90 LEAP Call YRO-AR

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FLR - Fluor

Earnings are the 12th. Maybe we can catch a dip back to support.

Company Info:

Fluor Corporation is a holding company that, through its subsidiaries, provides engineering, procurement and construction management (EPCM) and project management services. Fluor serves a number of industries worldwide, including oil and gas, chemical and petrochemicals, transportation, mining and metals, power, life sciences and manufacturing. Fluor is also a primary service provider to the United States Federal Government. It performs operations and maintenance activities for major industrial clients, and also operates and maintains their equipment fleet. The Company is aligned into five principal operating segments: Oil and Gas, Industrial and Infrastructure, Government, Global Services and Power. Fluor Constructors International, Inc., which is organized and operates separately from its business segments, provides unionized management, construction and management services in the United States and Canada, both independently and as a subcontractor on projects to its segments

Breakdown trigger: $147

Buy 2010 $160 LEAP Call LLF-AL
Sell 2010 $230 LEAP Call LLF-AV

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JEC - Jacobs Engineering

Jacobs beat the street on earnings and has weathered the oil decline with barely a notice.

Company Info:

Jacobs Engineering Group Inc. (Jacobs) is a professional services firm in the United States. The Companys business focuses on providing a range of technical, professional and construction services to industrial, commercial, and governmental clients around the world. Jacobs provides four categories of services: Project Services (which include engineering, design, architectural, and similar services); Process, Scientific and Systems Consulting services (which includes services performed in connection with a variety of scientific testing, analysis and consulting activities); Construction services (which encompasses traditional field construction services, as well as modular construction activities, and includes direct-hire construction and construction management services), and Operations and Maintenance services (which includes services performed in connection with operating large, complex facilities on behalf of clients, as well as services involving process plant maintenance).

Breakout trigger: $90

Buy 2010 $100 LEAP Call WEU-AT

Breakdown trigger: $80

Buy 2010 $90 LEAP Call WEU-AR

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FWLT - Foster Wheeler

Earnings are May 7th. I am looking for a dip to buy.

Company Info:

Foster Wheeler Limited operates through two business groups, the Global Engineering & Construction Group (Global E&C Group) and the Global Power Group. The Global E&C Group, which operates globally, 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, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure, including power generation and distribution facilities, and gasification facilities. The Global Power Group designs, manufactures and erects steam generating and auxiliary equipment for electric power generating stations and industrial facilities globally. In February 2008, the Company completed the acquisition of Biokinetics. On April 7, 2006, the Company completed the purchase of the remaining 51% interest in MF Power.

Breakdown trigger: $58

Buy 2010 $70 LEAP Call LWM-AN
 


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