Option Investor

Weekly Newsletter, Saturday, 08/09/2008

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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

Starting Over

That makes three weeks in a row that we have been wiped out and had to start over. If I could take back all those entries as oil was falling I would gladly do it. However, buying dips is a tried and true strategy in any market. Unfortunately our dip has gone from $147.90 to $115.15 in almost a straight line. That 22% drop of -$32.75 into bear market territory was unprecedented in dollar terms in the history of crude futures. Today it appears it will continue to at least $110 if not $100. The 200-day average is $107.50.

Fortunately the equity analysts are already starting to pound the table on energy stocks even though they expect crude to fall further. While you can't tell they are turning bullish from the declining prices on the stocks the tide may be starting to turn. Nobody is going to drill less for oil at $110 than $140. That is still a major payday and before they can get production on a well planned today it will be worth well more than $150 when it hits the market.

I was struck this week by the devastation not only in the oil stocks but gas, metals, fertilizers, etc. This is truly a bursting commodity bubble and the two-week rally in the dollar has hastened that explosion.

It is even more surprising that oil continued its decline despite the continuing fire on the BTC pipeline knocking 850,000 bpd offline and the war in Georgia. BP claims the Russian fighting has not disrupted crude flows but analysts are bracing for a shutdown. Cutting off the oil would be one way to fight Georgia and have the added benefit of boosting oil prices for Russia. Even given these events the price of oil dropped $5 on Friday.

The drillers and oil field service companies are trading as though there was a glut of oil and rigs. This is definitely not true as evidenced by recent news. So far this year Brazil has deployed 29 rigs, the most in 21 years and India ordered 28 according to Baker Hughes. Those two countries accounted for 18% of the offshore rig fleet. Asia Pacific and Latin America deployed 211 rigs last month or about 68% of all global offshore equipment excluding the U.S. and Canada. Increased exploration has tripled rig rates and has the offshore fleet almost entirely booked for the next two years. Transocean said rental of their most advanced rigs increased 35% from 2007 rates to $390,400 a day. When RIG announced earnings they announced $6.45 billion in contract extensions from Reliance Industries (India) and Petrobras. $3.05 billion of that was a Petrobras contract for four rigs through 2016.

Petrobras announced another light oil discovery offshore in the same general area as those announced several months ago. The well is 230 KM off the coast of Rio de Janerio in 2,230 meters of water. The Noble rig Paul Wolff is continuing to drill the well in hopes of deeper prospects. The light oil was discovered at a depth of 5,600 meters. Petrobras definitely has an embarrassment of riches.

The IEA will release its monthly oil report next Tuesday. Expectations are for revisions to prior production estimates and a decrease in future demand estimates. The Chatham House, a British think tank, released a report last week saying a supply crunch within the next 5-10 years would produce $200 oil or higher. They claim a supply crunch will occur around 2013 even allowing for some increases in capacity over the next couple of years. The report assumes Saudi production will remain flat at 12.5 mbpd if they actually reach that level in 2009 and that the capacity of the other OPEC countries remains flat after 2008. With several of them already in decline that is a reasonable assumption that the others cannot produce enough extra to actually overcome that decline. The report claims there is enough discovered oil to overcome the shortage for years into the future but that resource nationalism and insufficient investment into national oilfields were preventing that oil from being produced.

The drop to $115 last week reloaded the portfolio with a few more energy stocks and most entries were Mon/Tue with declines muted for the rest of the week. RIG was an exception. RIG fell $4.22 on Friday to $127 after holding above $130 for most of the week. When great companies making billions of dollars with backlogs out to 2016 are being knocked for major losses it is not rational trading. It is another prime example of funds being forced to sell whatever has value to make up for falling prices elsewhere. If you were a hedge fund manager amassing a fortune in crude futures over the last year as weekly estimates of higher and higher prices propelled those futures higher you were a happy camper. Now that the trend has reversed it is panic time as margin calls from those declining contracts eat into your other investments. Multiply this by several thousand funds in varying degrees. The volume on the crude futures has rocketed higher over the last several weeks as amassed portfolios have been dumped. Eventually every market will become oversold just as much as it was overbought before. We just have to wait out the change in direction and the pain at the fund rather than the pain at the pump.

Crude Oil Chart with volume

I thought you would get a kick out of this graphic from the McCain campaign. In response to the McCain pledge to increase drilling in the U.S., Obama suggested Americans could save money on gasoline by over inflating their tires. The McCain camp was quick to jump on that comment with a promotion to get your free Obama tire gauge with a contribution to McCain.

Readers Write:

Hi Jim, You have got my curiosity peaked with a statement you made in your August 2nd 2008 Leaps Trader article. You made the statement, "The spike we saw this summer was artificial. I believe there was some market manipulation involved. However, when supply and demand are so close to equal it does not take much to manipulate prices. A little truth goes a long way in a
manipulated market. Personally I believe the OPEC nations always have a hand in the futures market and could have "helped" the price along." I would be very interested in you going into some depth as to what you meant by that statement. Unless I have missed something you may have said in one of your previous articles I do not recall you ever saying that you believed that
there was any manipulation here. Also, if you believe that it may have been "helped along" by OPEC nations, could you please explain how you think that may have happened? I greatly value your opinion and truly enjoy your writing and will eagerly await any form of answering this question for me, be it in the readers write portion, or addressing it outright in the newsletter or
responding to this email. Thanks for All You Do,


Glad to try and answer that question. I wrote several months ago of a rumor circulating in the markets about OPEC countries manipulating the price of crude through the futures market. Without rehashing that entire piece the principle was simply this: OPEC produces roughly 30 million barrels of crude per day. They are active in the futures market. Maybe a little too active. They have inside knowledge of how much crude "is being produced" and when it will get to market. They know how much is headed to the U.S. and will be reported in the weekly inventory numbers. Their sovereign funds control hundreds of billions in investment dollars. The rumor making the rounds was that several sovereign funds were making buys in the futures market at the same time across different exchanges when they needed the price to move in their favor. Given the leverage in the futures market and the amount of money these funds control it would be a simple task to keep an upward pressure on the price. If you knew in advance what oil was being produced and delivered you could time the buys to coincide with the events. Add a few dropped hints here and there and comments from the Saudi king about not producing any more oil and you have an instant price spike. You continue to preach the "no more production, the market is well supplied" mantra whenever the price starts to weaken. You unload your contracts in an orderly manner and get ready to repeat the process.

Obviously there is no way to substantiate this rumor. I was curious if the CFTC was going to uncover any of these trades but given the massive amount of hedging the OPEC countries undertake, a few thousand contracts here and there would go unnoticed. That would be especially true if they were actually doing it as a conspiracy as one rumor alleged. I was ridiculed for reporting on it the first time and I am sure somebody will take offense again this time. "Surely this is not possible given the tracks in the system." Surely you jest. The system has more holes than Swiss cheese given the number of markets, players, futures instruments, options and the volume of the commodity actually traded. Do you really trust the Arabs to deal straight up? Why do you think they won't release reserve numbers? Why do you think we get 84 answers to every question from dozens of spokesman and insiders with information given anonymously? Even OPEC itself has a stated goal to maximize the price of oil at whatever the market will bear. Not what it costs them or a fair profit but at whatever level the market will bear.

I may be predisposed to believing in the rumors simply because I read so much research and recognize what a crock of crap is produced as "official" by the various OPEC countries. Heck, even OPEC has to depend on outside sources for production info because their own members lie to each other in their reports. Of course I know they would not conspire to cheat the U.S. consumer because they love us so much. They are happy as heck that we invaded Iraq and upset their applecart with a potential democratic state in their midst. I personally believe that the price of oil today has a lot to do with payback by the Persian Gulf nations for our interference. Could I see them attempting some subtle intervention in the global futures markets? Heck yes! When you already control 35% of the world's daily production it would be a simple process to manipulate prices. I am sure many readers will think I have lost my focus here but then I don't believe the high gasoline prices in the U.S. are the fault of Exxon either.

Jim Brown

(I am going to try and make this a weekly feature. Send me your email questions and I will try to answer. Jim @ OptionInvestor.com)

September Crude Futures Chart - Daily

September Natural Gas Futures Chart - Daily

September Gasoline Futures Chart - RBOB Daily


Changes in Portfolio

New Energy Plays

New Non-Energy Plays

Dropped Plays
BTU Peabody Energy *** Stopped ***
CHK Chesapeake Energy *** Stopped ***
FLS Flowserve *** Stopped ***
FWLT Foster Wheeler *** Stopped ***
MOS Mosiac *** Stopped ***
RIG Transocean *** Stopped ***
USO US Oil Fund *** Stopped ***

New Watch List Plays Triggered
XLE $70.98 Energy Select SPDR
FLR $76.32 Fluor
PBR $51.06 Petrobras
RIMM $133.75 Research in Motion
UPL $64.54 Ultra Petroleum
APC $53.78 Anadarko Petroleum
BHP $65.77 BHP Billiton

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 strongly urge readers to be patient on new entries. We could see $110 or even $100 before the correction is over.


New Plays

Most Recent Plays

New Watch List Plays Triggered

XLE $70.98 - Energy Select SPDR

Our breakdown entry at $72 was triggered on Monday and the XLE is still holding just over $71. I am definitely happy about that given the drop in oil for the week.

The XLE is a group of 36 companies in the energy sector. Exxon is the largest component and Tesoro the smallest. See the complete list here.

ETF Info:

Energy Select Sector SPDR Fund (the Fund) seeks to provide investment results that correspond to the price and yield performance of the Energy Select Sector of the S&P 500 Index (the Index). The Index includes companies that primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services. The Fund utilizes a passive or indexing investment approach to invest in a portfolio of stocks that seek to replicate the Index. The Funds investment advisor is SSgA Funds Management, Inc.

Breakdown trigger: $72.00, hit 8/04

Position: Dec $80 Call XTG-LB @ $3.00


FLR $76.32 - Fluor

Like the XLE our breakdown trigger was hit on Monday at $76 and then Fluor did its best to hold that support level the rest of the week. No complaints!

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: $76, hit 8/04

Position: 2010 $90 LEAP Call LLF-AR @ $14.60


PBR $51.06 - Petrobras

PBR is honoring round number support at $50 and announced a new oil discovery on Friday. I don't know why PBR is languishing given they made the biggest oil discovery in the last 30 years and keep improving on that discovery with every well. Ken Hebner and I are definitely confused. He has 2 million shares.

Company Info:

Petroleo Brasileiro SA - Petrobras (Petrobras) is a Brazil-based holding company is engaged in the exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and in the refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy related activities. Petrobras has 109 production platforms and 15 refineries. It operates 31,089 kilometers of pipelines. The Company has various subsidiaries: 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.

Breakdown trigger: $50, hit 8/05

Position: 2010 $60 LEAP Call YMO-AL @ $8.20


RIMM $133.75 - Research in Motion

RIMM is a combo play this time around to offset the extreme cost of the call option. We bought the call for $27.50 and sold the $110 put for $20.90 for a net debit of $6.60. I put a stop loss on the play at $119. In theory the call will continue to appreciate as RIMM moves higher and the put will continue to decline as it gets farther out of the money.

Company Info:

Research In Motion Limited (RIM) is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to time-sensitive information including email, phone, short message service (SMS) messaging, Internet and intranet-based applications. RIM technology also enables an array of third party developers and manufacturers to enhance their products and services with wireless connectivity to data. RIMs portfolio of products, services and embedded technologies are used by organizations worldwide and include the BlackBerry wireless solution, software development tools, and other software and hardware. RIM operates offices in North America, Europe and Asia Pacific.

Breakout trigger: $125, hit 8/06

Long 2010 $140 LEAP Call YKD-AH @ $27.50
Short 2010 $110 LEAP Put YKD-MZ @ $20.90, net debit $6.60


UPL $64.54 - Ultra Petroleum

Ultra reported earnings on Tuesday that more than doubled the comparison quarter on a 125% increase in revenue. Production rose +23% and the average sales price of gas was $8.06 per mcf. They get less for their gas because of their location in Wyoming. Once the pipeline is finished to the east coast their profits will again accelerate sharply. They have no downside risk with an active hedging program and no offshore or out of country assets.

Company Info:

Ultra Petroleum Corp. (Ultra) is an independent oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and natural gas properties. The Companys operations are primarily in the Green River Basin of southwest Wyoming. The Company continually evaluates other opportunities for the acquisition, exploration and development of oil and natural gas properties. As of December 31, 2007, Ultra owns interests in approximately 121,652 gross (62,756 net) acres in Wyoming covering approximately 230 square miles. The Company owns an interest in approximately 676 gross producing wells in this area and is operator of approximately 50% of the 676 gross wells. The Company owns interests in 252,629 gross acres in Pennsylvania. On October 22, 2007, the Company sold Sino-American Energy Corporation (Sino-American), which owned its Bohai Bay assets in China.

Breakdown trigger: $65, hit 8/05

Position: 2010 $80 LEAP WSS-AP @ $13.50


APC $53.78 - Anadarko Petroleum

Earnings on Tuesday fell sharply due to a market to market on hedged positions of $1.3 billion. Anadarko feels confident that the hedges will reverse to a profit before they expire. These companies like Ultra, Chesapeake and Anadarko have serious hedging programs to guarantee cash flow against debt on future production. Income from continuing operations rose to $1.76 per share compared to 89 cents in the prior quarter.

Company Info:

Anadarko Petroleum Corporation (Anadarko) is an oil and gas exploration and production company with 2.43 billion barrels of oil equivalent (BOE) of proved reserves as of December 31, 2007. The Companys major areas of operation are located onshore in the United States, the deepwater of the Gulf of Mexico and Algeria. Anadarko also has production in China and a development project in Brazil. It markets natural gas, oil and natural gas liquids (NGLs) and owns and operates gas gathering and processing systems. In addition, Anadarko has hard minerals properties that contribute operating income through non-operated joint ventures and royalty arrangements in several coal, trona (natural soda ash) and industrial mineral mines located on lands within and adjacent to its Land Grant holdings. The Land Grant is an eight million acre strip running through portions of Colorado, Wyoming and Utah where the Company owns most of its fee mineral rights.

Breakdown trigger: $55, hit 8/04

Position: 2010 $70 LEAP Call YPC-AN @ $7.60


BHP $65.77 - BHP Billiton

BHP hit out target of $65 on Tuesday and then held that level for the rest of the week. BHP is active in almost every metal including uranium and they have a strong oil and gas business. With a global footprint and backlogs in several commodities they are assured of future profits. However, if the world does fall into a recession they will be impacted. $60-$65 should be strong support.

Company Info:

BHP Billiton Limited is a diversified resources group. The Company is a producer of energy-related products, such as energy coal, oil, gas, liquefied natural gas and uranium. Its customer sector groups (CGS) are organized into nine business units: petroleum, aluminium, base metals, diamonds and specialty products, stainless steel materials, iron ore, manganese, metallurgical coal and energy coal. The Company generally extracts and processes minerals, oil and gas in the southern hemisphere from its production operations in Australia, Latin America and southern Africa. Its sales are concentrated in the northern hemisphere. In August 2006, BHP Billiton plc completed the sale of its 45.5% interest in the Valesul Aluminio SA joint venture to its joint venture partner, Companhia Vale do Rio Doce. In April 2007, the Company acquired a 33.3% interest in Global Alumina's Sangaredi Refinery Project in Guinea, West Africa. In July 2008, the Company completed the acquisition of Anglo Potash Ltd.

Breakdown trigger: $65, hit 8/05

Position: 2010 $80 LEAP Call LPH-AP @ $9.50


Play Updates

Existing Plays

FLS $119.88 - $9.94 - Flowserve *** Stopped ***

Massive volatility with a $25 range over the last six days. No reason for the decline other than they are related to the energy sector.

Breakout trigger: $128, hit 7/29

Position: JAN $140 Call FLS-AH, $12.30, exit 8/05 @ $8.20


FWLT $51.96 -4.12 - Foster Wheeler *** Stopped ***

Earning more than doubled but nobody seemed to care given the perceived idea that the rest of the world is now heading into a recession just as the U.S. recovers. Strong post earnings drop on no reason took us out.

Breakout trigger: $60, hit 7/30

Position: 2010 $70 LEAP Call LWM-AN $11.70, exit 8/04, $9.40


RIG $127.16 -$10.45 - Transocean *** Stopped ***

RIG imploded after reporting record earnings that beat the street with $3.45 per share to estimates of $3.23. Net income was $1.1 billion for the quarter. Rates on its deepwater rigs rose to $600,000 per day. I can't even comprehend that number. Revenue more than doubled and RIG tanks -$10. Go figure.

Breakout trigger: $140, hit 7/30

Position: 2010 $160 LEAP Call YDR-AL $22.40, exit 8/05, $17.00


CHK $43.29 -5.93 - Chesapeake Energy **** Stopped ****

CHK broke support at $45 on the continued drop in gas prices. No love left in the sector.

Breakdown trigger: $51 hit 7/22

Position: 2010 $60 LEAP Call WZY-AL @ $8.90, exit 8/05, $6.50


BTU $58.58 -6.19 - Peabody Energy **** Stopped ****

After reporting earnings that more than doubled two weeks ago BTU declined to break support at $60 on no specific news. Coal companies are tied to the price of natural gas and you know what happened to gas. It is not rational since the coal is presold as much as 2 years in advance. They are not selling coal today that they just dug up.

Earnings July 23rd, more than doubled Q2-2007.

Breakout trigger: $68 hit 7/21

Position: 2010 $80 LEAP Call LLW-AP, $14.80, exit 8/5 $11.00


USO $92.68 -8.36 - US Oil Fund *** Stopped ***

Unfreaking believable. After closing over $100 last Friday the USO dropped $8 to close under $93 this Friday. If you compare the charts with crude the USO is already well below the comparative level on the crude chart. Evidently the mix of assets and the different type of investor has taken its toll.

Breakdown trigger: $101, hit 7/23

Position: OCT $110 Call IYS-JF, $6.30, exit 8/05, $3.30


MOS $104.42 -18.27 - Mosaic Industries *** Stopped ***

MOS was hammered for a $20 loss in only two days after posting record earnings. The trade here is clear. Short anybody that reports earnings in a commodity sector regardless of their good news.

Breakdown trigger: $125 hit 7/08

Position: 2010 $160 LEAP Call KCA-AL @ $27.45, exit 8/04, $25.21


COP $80.91 -.24 - ConocoPhillips

Surprise, surprise! No stop and a minor 24-cent loss. Support at $80 is holding.

Earnings July 23rd, $3.50 per share

Position: 2010 $90 LEAP YRO-AR @ $11.35


ENER - $62.99 -5.42 Energy Conversion Devices

+$5.54 last week, -5,42 this week but still managing to avoid the stop loss at $58. A $10 range for the last week as any energy stock is pummeled. br>
Breakout trigger: $68.50 hit 6/16

Position: 2010 $80 LEAP Call KYU-AP @ 23.10


CRR $51.75 +3.45 - Carbo Ceramics

Taking a page from the NER play above CRR gained +3.42 last week only to lose $3.45 this week. Support still holding at $51 despite the implosion in oil.

Breakout trigger: $48 Hit 5/122

Position: Dec $50 Call CRR-LJ @ $5.80

Non-Energy Positions


Leaps Trader Watch List

Dropped Entries
EWZ Ishares Brazil

New Watch List Entries
US Oil Fund

I also deleted some triggers

Current Watch List

HP - Helmerich & Payne

Company Info:

Helmerich & Payne, Inc. is primarily engaged in contract drilling of oil and gas wells for others. The contract drilling business accounts for almost all of the Company's operating revenues. It is also engaged in the ownership, development and operation of commercial real estate. It is organized into two separate operating entities: contract drilling and real estate. The Company's contract drilling business consists of three business segments: U.S. land drilling, offshore platform drilling and international drilling. The Company's U.S. land drilling is conducted primarily in Oklahoma, California, Texas, Wyoming, Colorado, Louisiana, Mississippi, Alabama, Arkansas, New Mexico, and North Dakota, and offshore from platforms in the Gulf of Mexico, California, Trinidad and Equatorial Guinea. During the fiscal year ended September 30, 2007, the Company's international land segment operated in seven international locations: Venezuela, Ecuador, Colombia, Argentina, Bolivia, Tunisia and Chile.

Breakout trigger: dropped

Breakdown trigger: $50

Buy 2010 $60 LEAP Call LQB-AL


HES - Hess Corp

Company Info:

Hess Corporation (Hess) is a global integrated energy company that operates in two segments: Exploration and Production (E&P) and Marketing and Refining (M&R). The E&P segment explores for, develops, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place principally in Algeria, Australia, Azerbaijan, Brazil, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Russia, Thailand, the United Kingdom and the United States. The M&R segment manufactures, purchases, transports, trades and markets refined petroleum products, natural gas and electricity. As of December 31, 2007, the Company owned a 50% interest in a refinery joint venture in the United States Virgin Islands, and another refining facility, terminals and retail gasoline stations located on the East Coast of the United States.

Breakdown trigger: $88

Buy 2010 $100 LEAP Call WHS-AT
Sell 2010 $90 LEAP Put WHS-MR


VLO - Valero

Company Info:

Valero Energy Corporation (Valero) owns and operates 17 refineries located in the United States, Canada and Aruba that produce conventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined products. The Companys principal products include conventional and California Air Resources Board (CARB) gasolines, reformulated gasoline blendstock for oxygenate blending (RBOB), ultra-low-sulfur diesel, and oxygenates and other gasoline blendstocks. Valero also produces a substantial slate of middle distillates, jet fuel, and petrochemicals, in addition to lube oils and asphalt. Valero markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It also sells refined products through a network of approximately 5,800 retail and wholesale branded outlets. Effective July 1, 2007, the Company completed the sale of the Lima, Ohio refinery to Husky Energy Inc.

Breakdown trigger: $30

Buy 2010 $40 LEAP Call YPY-AH

Breakout trigger: dropped


USO - US Oil Fund

I am targeting worst case here with crude falling to $100. That would take the USO to $80 and very strong support. This is a hail Mary play where we could do very good if triggered but odds of getting triggered are slim.

Company Info:

United States Oil Fund, LP (USOF) is a commodity pool that issues limited partnership interests or units that may be purchased and sold on the American Stock Exchange (the AMEX). The Company invests in futures contracts for light, sweet crude oil and other types of crude oil, heating oil, gasoline, natural gas and other petroleum-based fuels that are traded on the New York Mercantile Exchange (NYMEX), International Currency Exchange (ICE) Futures or other United States and foreign exchanges (collectively, Oil Futures Contracts). It holds interests in other oil-related investments such as cash-settled options on Oil Futures Contracts, forward oil contracts, and oil-based over-the-counter transactions. As of December 31, 2007, USOF held 4,754 Oil Futures Contracts traded on the NYMEX and 300 Oil Futures Contracts traded on the ICE Futures. The Company operates under full management control of its sole General Partner, Victoria Bay Asset Management, LLC (the General Partner).

I am not using LEAPS because I view this as a short-term trade.

Breakdown trigger: $82

Buy DEC $90 Call UNA-AL


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