In a previous article, “Texas Utilities (TXU) Merger & Jim Cramer: Opportunity in Coal”, we analyzed the private equity acquisition of Texas Utilities and some of the potential ramifications of the deal. As part of the deal, Texas Utilities (TXU) will forgo building 11 new coal fired electric power plants.
Another potential fallout from this deal is an increase in the demand for other sources of electrical energy, natural gas in particular. Electric energy consumption is not decreasing, so the electrical energy, which was to be generated by the 11 scuttled TXU coal fired power plants, has to come from someplace, and one potential avenue could be from natural gas.
The price of natural gas is about half what is was a little over a year ago, and with the potential for increased demand for natural gas, the natural gas industry looks ripe for some attention from investors.
El Paso Corp. (EP) looks very attractive in the current environment. El Paso’s stock price has stabilized from its freefall experienced in 2003 and is on an upward trend. El Paso’s management has been incrementally selling off assets in order to improve its balance sheet. Additionally, El Paso has the “oil for food kickback” scandal in the rear mirror.
In an Aug 7, 2007 press release, El Paso president and CEO seems confident of the company’s bright future: “El Paso’s second quarter results are another step toward the delivery of our 2006 goals,” said Doug Foshee, El Paso’s president and chief executive officer. “Our pipeline and E&P businesses both delivered solid results, and we are on track to reduce our year-end 2006 debt, net of cash, to $14 billion. More importantly, our pipeline and E&P businesses have solid growth trajectories that point to further improvement in 2007.”
Competitors:
Competitors for EP include: DCP Midstream Partners LP (DPM), Exxon Mobil Corp. (XOM), Williams Companies Inc. (WMB), Boardwalk Pipeline Partners LP (BWP), ONEOK Partners L.P. (OKS), and TEPPCO Partners LP (TPP).
Potential Trade:
El Paso is looking bullish and using PowerOptions powerful suite of stock options search tools, we found the following attractive covered calls stock options position for El Paso.
| Covered call search for Mar 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
Option Sym |
Expire &Strike |
Opt Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd. |
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| EP | 14.58 | EPDC | 07 APR 15 (51) | 0.35 | 2.40% | 2.50% | 5.40% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The El Paso out-of-the-money covered call position has downside protection of 2.4%, has a potential return of 2.5% if the stock price of EP remains unchanged at stock options expiration and has a potential return of 5.4% if the stock price of EP increases above the $15 strike price of the stock options at expiration.
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[tags]Doug Foshee, BWP, Boardwalk Pipeline Partners LP, DPM, DCP Midstream Partners LP, EP, El Paso Corp., OKS, ONEOK Partners L.P., TPP, TEPPCO Partners LP, WMB, Williams Companies Inc., XOM, Exxon Mobil Corp., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options[/tags]