The Last Sane Oil Play of the Summer
By Adam Lass
Oil, oil, oil! Are we sick of it yet? Maybe. Maybe not. We claim that we are tired of paying out the nose for it. But we don’t do much about it.
(Yeah, yeah, I know: We pay half for gas that they do in Europe. So what? Parisians get eight weeks’ vacation a year, and get to take it on the French Riviera, where all I’ve got is an open sewer called Ocean City.)
Oh yeah. We are sick of oil prices, but we are not changing our driving habits to any great extent, mostly because we can’t, at least not anytime soon. We live where we live, which is farther and farther from work, and we drive what we drive.
What’s more, not only do we not build decent light-rail lines, in many cases we have allowed coach and tire companies to buy out and close down our trolley lines. So instead of reading the paper as we ride to work amongst our fellows, we crowd onto the highways each in our own little air-conditioned world replete with protective airbags and personal soundtracks.
And as long as we are not voting with our feet, we will keep on paying through our noses. So how can a cynic make some money off this awful inertia?
The answer months ago was “buy oil companies!” Picking up shares of Exxon Mobil (XOM: NYSE), Chevron (CVX: NYSE) or ConocoPhillips (COP: NYSE) late last winter when oddly warm weather had driven them into a very, very temporary trough (as per the advice of yours truly) would put you up anywhere from 10% to 25%, depending on your choice of weapon and aptitude at entry points.
If you want to get fancy about it, you could have followed the advice available to readers of my WaveStrength Options Weekly column and racked up max aggregate gains of 475% off various call contracts against various oil patch players.
Knowing that you are getting some back from each and every gallon you and all the guys around you are pumping certainly ameliorates the pain a bit. But what now?
One has to figure that by the time Cramer has some blowhard on his cable circus (complete with rude sound effects) pushing large-cap oil stocks, the sector is probably completely raked over. And indeed, a quick tour through the top listings shows both share prices and option premiums through the roof.
Where last winter you could have paid 50 cents a month to carry an option (a deal in any sophisticated trader’s book), now any tyro with a thick black crayon can trace out where oil is headed next, and time like that can run you as much as $2 a month.
But if you know where to look, and how to pick, there are still deals in oil town. My partner in crime – er, analysis -- Bryan Bottarelli, and I have scouted out what may be the last cheap oil play out there.
It’s a smaller player based out of Houston with operations in North America and Brazil, Asia and Central America. Small is a relative concept in the oil biz, mind you: Our pick has a market cap of $10.85 billion and is sitting on some 2.4 trillion cubic feet of natural gas equivalent of proved natural gas and oil reserves and operates 43,000 miles of interstate pipeline.
Already crude oil’s ramp-up has pasted an additional 20% onto shares. But Bryan and I have found an option that will add on another 61% as oil and gasoline prices build to their summer peak. Any disruption to the markets such as a heating up of the percolating crises in Nigeria, Iran or Venezuela will push our chosen vehicle’s gains to 129%.
Forgive me if I am being coy here, but this is a smaller company, and the option chain has that much less volume, so I am saving this one for WOW subscribers, who only learned of it just this week. But I can tell you that prices for this option will still be reasonable for another 10 days or so, for those who are interested in getting in.
Adam Lass
Market Analyst, WaveStrength Options Weekly
Average a 77% Gain Virtually Every Week
They nailed the bull market of 1999 and 2000… The devastating bear market sparked by the terrorist attacks of September 11… The eventual recovery in October of 2003… The ensuing flat market of 2004… and even the emerging bull market of 2005 and 2006. Find out how you can make money on stocks you don’t own.
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