Oil has reached a year-high of nearly $63 a barrel as Iran and Venezuela are continuing to raise international tensions with their political positions. In this blog entry, we will take a look at Jim Cramer’s position on what this means for the long-term profitability of the energy sector and where investors can look for covered call trading positions.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_03_27_CramerEnergy.mp3
What exactly moves oil prices? It can be decreased supply or increased demand, but in recent weeks analysts are unanimous on agreeing it is international tensions. Jim Cramer stated in an online interview yesterday, “First it is important to note that it is international tension moving oil. There is a bit of a glut of oil, so oil has been going in the mid-50s.”
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What will this do to the profits of the oil companies? Because the market is pricing in uncertainties, and if there are no real cost associated with the increased revenue, profits will increase. Jim Cramer stated, “It is important to remember that this is soon to re-ignite earnings.” He also observed, “It’s already re-igniting the whole drilling complex.”
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As for the target price of oil Cramer stated, “This is genuine tension and I’m surprised oil isn’t at 65 or 67… I have been a bull on oil and do not think it goes below the $50 range, in fact the $53 to $63 seems very right to me.”
Cramer is perplexed as to why Gulf and Canadian drilling has decreased in recent years stating, “The irony is that we [the US] have dramatically dropped drilling. The President seems oblivious to this. I don’t want to pick on the President because there are so many things going wrong with Gonzales and Iraq. But we’re not drilling in the Gulf and we’re not drilling in Canada.”
Potential Trades:
All of the following option trades have 54 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| PowerOptions covered call search ENERGY Sector (54 days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
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| OXY | $48.70 | OXYEJ | 07 MAY $50.00 | $1.60 | 3.30% | 3.40% | 6.20% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GMT | $49.04 | GMTEJ | 07 MAY $50.00 | $1.55 | 3.20% | 3.30% | 5.30% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| VLO | $64.38 | VLOEM | 07 MAY $65.00 | $2.55 | 4.00% | 4.10% | 5.10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COP | $69.60 | COPEN | 07 MAY $70.00 | $2.50 | 3.60% | 3.70% | 4.30% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OXY – Occidental Petroleum Corp. is a crude oil production company. This trade involves the May $50 call option and offers 3.3% downside protection and 6.2% potential profit if the stock is above the $50 strike price at the end of the option period.
GMT – GATX Corp. is a railway company engaging heavily in the transport of petroleum. This trade involves the May $50 call option and offers 3.2% downside protection and 5.3% potential profit if the stock is above the $50 strike price at the end of the option period.
VLO – Valero Energy Corp. is an oil refining and retailing company. This trade involves the May $65 call option and offers 4.0% downside protection and 5.1% potential profit if the stock is above the $65 strike price at the end of the option period.
COP – Conoco Phillips Corp. is the famous worldwide integrated oil company. This trade involves the May $70 call option and offers 3.6% downside protection and 4.3% potential profit if the stock is above the $70 strike price at the end of the option period.
Competitors:
Competitors for OXY include: EI DuPont de Nemours & Co. (DD), Exxon Mobil Corp. (XOM), and Sasol Ltd. (SSL).
Competitors for GMT include: ACF Industries LLC (private), GE Equipment Services (private), TTX Company (private), and Greenbrier Companies Inc. (The) (GBX).
Competitors for VLO include: BP plc (BP), Chevron Corp. (CVX), Exxon Mobil Corp. (XOM), Alon USA Energy Inc. (ALJ), Frontier Oil Corp. (FTO), Giant Industries Inc. (GI), Holly Corp. (HOC), Tesoro Petroleum Corp. (TSO), and Western Refining Inc. (WNR).
Competitors for COP include: BP plc (BP), Chevron Corp. (CVX), Exxon Mobil Corp. (XOM), Anadarko Petroleum Corp. (APC), Chesapeake Energy Corp. (CHK), Devon Energy Corp. (DVN), Hess Corp. (HES), Quicksilver Resources Inc. (KWK), and Western Refining Inc. (WNR).
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.
PowerOptions‘ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.
[tags] Iran, Venezuela, Jim Cramer, Canadian, Iraq, ACF Industries LLC, GE Equipment Services, TTX Company, ALJ, Alon USA Energy Inc., APC, Anadarko Petroleum Corp., BP, British Petroleum Co., CHK, Chesapeake Energy Corp., CVX, ChevronTexaco, DD, du Pont (E.I.) de Nemours & Co., DVN, Devon Energy Corp., FTO, Frontier Oil Corp., GBX, Greenbrier Companies Inc. (The), GI, Giant Industries Inc., HES, Hess Corp., HOC, Holly Corp., KWK, Quicksilver Resources Inc., SSL, Sasol Ltd., TSO, Tesoro Petroleum Corp., WNR, Western Refining Inc., XOM, Exxon Mobil Corp., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]