Terrible Tuesday (for Oil)

Oh dear! I hope it wasn't something I said…

OK, so I was a little ahead of the game in August when I wrote " Oil’s Slippery Slope: Why Crude and Oil Stocks May Be Headed Down, Fast" and I was way ahead of the curve in September with " How Long Can the Exxon Bulls Last?" but we learned from our (my) mistakes and figured out how the markets were being manipulated and positioned ourselves accordingly.

I even tried to help OPEC out (and when I say OPEC I include XOM, CVX, BP, RDSA, TOT and all the other enablers) by pointing out the flaw in their pricing model and suggesting an alternate strategy. Too bad they didn't listen – people pay me good money to consult and I gave them that for free!

I will be jetting off to Stockholm later this year to accept the Nobel for my Roach Motel Theory, which is now playing out in full and painful force across the energy patch and this time I hit it right on the head on December 15th when I wrote:ExxonMobil: Black Magic.

Timing may be everything but persistance and sound fundamentals are certainly something too!

The Hang Seng broke below 20,000 but the Nikkei (oil dependent) rose 146 points and the rest of Asia did well too as the mainland market made a new record on the China Life IPO (for their market).

Europe is trading fairly flat for the same reason we might – the energy sector is taking a beating and a half today! Our man Putin probably poked the hole in the bubble by commiting the cardinal sin of oil fear mongering – he actually carried out a threat! Russia cut off 1.5Mbd to Europe over a very silly dispute with Belarus that should have been handled in court (like big boys do).

The net effect of this was that it made European traders realize they had so much oil on hand that losing 1.5M barrels of it per day (12% of Europe's consumption) really wasn't a big deal. Poof! No more worries about what will happen if Russia stops supplying oil – it happened it's over, we lived…

Now, more than ever, we need that Nasdaq and Russell leadership to pull the markets away from the drag of the energy sector as the sell-off is coming faster and farther than I had hoped but there is no denying that what constitutes a crisis for 20% of the S&P will be a bonanza for the other 80%!

As I said yesterday: It's party time!

I'm not even going to worry about levels today as up is good and down is bad and it's doubtful we're going to have a major breakout today. Watching the indices will only distract us from what's really important and that's watching our 26 open oil puts!

I also said in yesterday's morning post: "Oil is getting as pushed as it can be and the dollar is weakening in response to China’s tightening and Europe’s anticipated strength this week. We’re looking to see if $57.21 holds to the upside. I think I’ll be pleased with my XOM Apr $80 covers for today but inventories are shaping up to be a disaster for oil bulls this week. See Zman’s excellent wrap-up on last week’s crude data.

A responsible analyst would calculate the next upside target for crude so he’d be able to point to it later and say he did cover all the basis but I will tell you right now that there is no upside for crude right now and any upward movement today is engineered nonsense."

Yep, that was about right (pat, pat).

Last Friday I said: "Let’s keep an eye on our oil resistance levels of $57.21, $55.66 and $54.34" and now it seems we have to keep anoher eye on $52.88 on the way to a possible test of the $50 mark!

Gold blah blah, dollar blah blah…

OK – back to oil!

We take the money and run on the initail sell-off of all January puts and roll into smaller positions in February with no more than half our profits with stops at 50% losses to preserve 75% of our profits. There WILL be a bounce – that's when we'll position for more downside but, for now, let's count our blessings that we were in the right place at the right time!

Let's review our postions (and, as this is a very special day, I will be sharing our members plays on the public site – it's nice to share!):

COP Jan $65 puts (1/5) .80, now .55
- These were a roll from the $70s so this is profits on profits and should come off the table on any bounce that costs us 20% of the position
COP Feb $65 puts (12/21,29) .75 avg, now $1.60
COP Feb $65 puts (1/5,8) $1.45 avg, now $1.60
- We need to move half out of this heavy position
CVX Mar $70 puts (1/4,8) $2.35 avg, now $2.50
- Since we doubled down we should take half back out or we can sell feb $65 puts against half, we can decide in comments
EOG Feb $60 puts (1/5) $2, now $1.85
- These come off on a pullback as we have two pre-rolls set up
EOG Feb $55 puts (1/3) $1, now .65
EOG Feb $55 puts (1/8) .65, now .65
- We can leave these as gas still hasn't come down like oil, but it will.
KMI Jan '08 $105 puts (9/20) .90 (including creds from sales), now $1.30
- We sold the Jan $105 puts for $1, we need to watch this one, perhaps not take a chance..
MRO Apr $85 puts (1/8), $4.75
- We need to play this by ear as we sold the Feb $85s against it!
OII Jan $37.50 puts (1/8) .85, now .85
- This was a roll so it's all profits but let''s keep a 25% trail on the position
OII Apr $40 puts (12/13) $1.60, now $3.75
OII Apr $40 puts (12/18) $1.10, now $3.75
- We can afford to watch these, maybe sell some closer puts
PBR Jan $100 puts (1/3) $1.30, now $4.80
- Absolutely take off the table if you haven't yet!
PBR Feb $90 puts (1/8) $1.60, now $1.60
- This is a roll of the profits so we have plenty of leeway
PTR Feb $130 puts (12/26,29) $2.25 avg., now $4.80
- We will look to roll this forward in comments
RDS.A Jan $70 puts (12/13,18,20) .85 avg., now $2.80
RDS.A Jan $70 puts (12/22) .65, now $2.80
- Absolutely need to take off and roll to Feb positiions (probably $60 puts)
SUN Jan $62.50 puts (12/28) $1.85, now $3.30
- Off the table by EOD, possible roll
VTS Feb $80 puts (1/3) $2.10, now $4.50
- These are a hold, VTS should be a lagger to the downside
XLE Jan $56 puts (1/4) $1.20, now $1.15
- The gift that keeps on giving – this is a roll of a roll of a roll! Still money is money and we don't leave it on the table, time to look at February for this one…
XOM Jan $72.50 puts (1/4) $1.95, now $2.05
- OK, we took this one BECAUSE we already had the $70s as a roll and the whole point was to make .30 (to cover the $70s) and get out – stick to the plan with a bonus and get out on a bounce!
XOM Jan $70 puts (11/3, 15, 12/6, 14) .31 avg., now .30
- Wow, I can't believe we are going to get out of this with a profit!!!
XOM Feb $72.50 puts (1/4) $1.95, now $2.05
- I'm felling pretty good about these (see this morning's article!)
XOM Apr $80 calls (12/29, 1/4) $1.80 avg, now $1.35
- This will be a good example of why a mid-range call makes a good cover!
XOM Jan '08 $72.50 puts (1/4) $5.20, now $5.40
- Do not forget this is meant to be an income producer so let's look for an opportunity to sell calls!