The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Friday, June 17, 2005
Email – #256
** Pre-market Alert
Suspend your mental sell-stop on the Energy Select SPDR (AMEX: XLE) puts (WHA MP). While we are still 15% away from hitting the sell stop, it could happen in the next day or so if the price of oil keeps rallying.
Here’s the reasoning behind holding on to this position:
1) Using LEAPS reduces our dollar risk substantially.
2) Oil prices are soaring based more on psychological issues than on actual supply shortages.
3) The strong move in prices over a short period of time (up over 25% in one month) has caused a mini-squeeze, forcing those who are short to buy and further push up prices.
4) The U.S. economy and global economies are, for the most part, slowing or experiencing moderate growth – enough of a slowdown to offset any growth related demand coming from China or India.
5) With 7.5 months left to go on our puts, there is ample opportunity to make a profit. Oil can retreat as quickly as it can go up – we have seen oil trade in a 25% range in one month – if that is not a sign of market uncertainty, I don’t know what is. Like a stretched rubber band, the snap back can be violent. Fortunately for us, this price spike, which could take oil prices over $60 per barrel, is happening very quickly, leaving us a lot of time for a reversal.
Regards,
Karim Rahemtulla
Bio:
Karim Rahemtulla is the former Investment Director of The Oxford Club. The editor of The Smart Options E-Report, The Income Trader – A Covered Call Strategy and The LEAPS Option Trader, Karim is also a regular contributor to The Oxford Club Communiqué. His highly successful trading systems use covered calls and LEAPS to boost returns on blue chip stocks, and during the bear markets of 2000 and 2001, his picks outperformed the major market averages. Educated in England, Canada and the U.S. and fluent in several languages, Karim travels the world to find the best investment opportunities for our members.
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