The Volatility Trader
105 W. Monument Street
Baltimore, MD 21201
Monday, September 25, 2006
Email – #191
New Trade Alert: Buy the Andarko Petroleum October $40 calls (APC-JH) at no more than $2.25.
With oil prices having slipped 23% from July highs to fall under $60, the commodity looks to be bottoming, as political and terrorist premiums ease and an end to hostilities in Lebanon. This has helped to shake out over-speculative bulls.
But we’re now seeking a short-term rebound from here, which presents us with a good trade opportunity.
But here’s the kicker: Global Supply remains at the low-end of the scale. The below chart shows this exactly. And while supply and demand have been decreasing over the past three years, supply has fallen significantly more than demand. You can bet that OPEC will do everything possible to keep oil at $60 per barrel.
We waited patiently for oil to come to us, now it’s time to play the rebound.
Anadarko Petroleum is a solid company with a low P/E ratio of 6.6 and PEG ratio of 0.73. What’s more Wachovia Securities just initiated coverage on the company, with a “Market Perform” rating. Given that the company is aggressively paying down debt, I’m also bullish. For this trade, both the technicals and the fundamentals are on our side.
Our initial stop on Anadarko will be a close below $40, forcing the stock to fall through the support before exiting our trade.
To wrap things up for now, here’s a quick portfolio update:
TXU Corp (NYSE:TXU)
Current Price: $59.97
Recommendation: Sell SHORT. Buy stop is above $67.50
Option: TXU Corp Jan 2007 $55 puts (TXF-MK)
Current Price: $1.90. We are up over 41% in this option already.
Recommendation: Sell puts if TXU closes above $67.50.
Mark Whistler
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Current Portfolio:
Stock or Option: Anadarko Petroleum Oct 2006 $40 calls (APC-JH)
Current Price: NEW
Comments: Buy calls. Sell if APC closes below $40.
Stock or Option: TXU Corp (NYSE:TXU)
Current Price: $61.25
Comments: Sell SHORT. Buy stop is above $67.50
Stock or Option: TXU Corp Jan 2007 $55 puts (TXF-MK)
Current Price: $1.31
Comments: Buy puts. Sell puts if TXU closes above $67.50.
