I’m posting up some oil stocks I will be watching for possible plays at inventory.
They are looking for about a 1M barrel net draw, which is a very low estimate so even if it is matched, there may be a sell-off. We did have a confirmed move up in the Valero Group at 10:40 yesterday but, other than VLO itself (see comments in Weds Wrap for my take on that) and USO (oil pump), there was little real confirmation.
On the one year chart, you can see that Valero is simply bouncing off the zero line, which is to be expected and it makes the timing of the spin job yesterday make real sense as they REALLY don’t want VLO to go negative as it calls the whole scam into question. Oil is still 15% below last year’s price of $70 (USO shows an exaggerated loss as its a terrible fee-eating ETF) yet XOM and CVX are up over 20% – compare this to SNDK who also had a drop in the price of the commodity they sell!
Bear in mind that all the oil plays are EXTREMELY risky and you need to be prepared to DD AND Roll to the next month (possibly twice) as any single month can really wipe you out (not that the other strategy can’t too!).
Apple is a good example of this: I rolled losses from losing trades on the Feb $85s and $80s to the April $100s which I then rolled into the July $85s for $8.10 for a $10.55 total basis as a DD against my already losing $11.95 position (the call was $8.10 at the time). I then sold Feb $85s for $1.15 against them to reduce the basis to $10.75, bought them back for .75 and then sold them again for $1.20 and was lucky to have them expire worthless.
So my intention was to take 3 terrible losses and roll them into a large in-the-money position and then sell premium for 4 months hoping to work my way back to even. I lucked out on the first two sales and (wisely it turns out) held off on the 3rd sale long enough for yesterday’s pleasant surprise but the trick is to recognize what a lucky bastard I am and get out, not get myself all confused thinking how great a play this is!
That’s the kind of thing you have to do if a trade like this goes against you. Today I am thrilled to take at least half of that trade off the table even, as I never intended to do more than save the other trades and I have… Bear in mind, that’s what I’m talking about when I say risky – VERY RISKY!
These are the prices I’m hoping to pay if we get a run up – I’m not chasing them but at these points I will start small entries.
Integrated Oil:
- COP Apr $65 puts for $1.50
- CVX Apr $70 puts for $1.50
- HES May $50 puts for $1.10
- IMO – no target but would be interesting at $37.50 or so.
- MRO Apr $90 puts for $2.50
- XOM Apr $72.50 puts at $1(done) and .65
- We started these yesterday. Fallback plan on a jump to $78 is to take the May $75 puts and sell closer $75 puts as the April $72.50 puts will make a nice buffer.
Oil and Gas Operations:
- CNQ Apr $50 puts at $1.20
- EPEX may be a protective call if it bottms out here
- FST May $30 puts for .50
- PPP May $45 puts for .75
- PXP (earnings today)
- STR $80 puts for $1
- TLM Apr $17.50 puts for .80
- TSO May $80 puts – will DD at 1.60
- XTO Apr $50 puts for $1.75
Oil Service:
- DO Apr $75 puts for $1.50
- NOV – if they have trouble at $70
- SII Apr $40 puts for $1
- SLB – back at $65
- WFT Apr $40 puts for $1
Those are the ones I’m watching for. It all depends on inventory and, of course, not getting a bullish confirmation from the VLO group… Let me know if you have suggestions, I’m thinking of starting a running sector watch list section…
– Phil
