Chevron (CVX) announced today a $15 billion stock buy-back in an attempt to return some of its profits to shareholders. This news coupled with projections of oil prices reaching $90 or even $100 per barrel has us thinking there may still be price gains in big oil stocks.Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_09_26_BigOil.mp3
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A report from the BBC from February of last year lays out why a British oil and exploration expert feels the world will see $100 barrel oil before 2011. With oil hanging around $80 per barrel, now may be the time to consider the oil industry.
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American Public Media’s Marketplace also reported last Friday on expectations for gas prices rising. In the report it is suggested the prices haven’t risen at the pump fully because service stations have been selling gas at no profit, or even at a loss, to lure in customers. This is of more interest to consumers and has little or no bearing on the profitability of the large oil companies.
In the futures market, crude oil has seen a 32% increase from a year ago. Crude oil futures were up over 3% last week; they seem to have hit a plateau this week hovering around $80 per barrel.
Exxon (XOM), British Petroleum (BP) and Royal Dutch Shell (RDSA) are all in the upper 25% of their 52-week range and all (with the exception of Royal Dutch Shell) have price to earnings ratios in the 10-13 ranges. Chevron is the only company of the four with positive revenue growth and a reasonable 1.4 P/E/G. Exxon and British Petroleum both have P/E/G’s approaching 2.
Looking at this News from an Option Trading Perspective:
Big oil stocks are traditionally higher priced stocks. Consequently, entering into a covered call position for 100 shares may require around $10,000 of capital. Some other, however significantly more risky, alternatives include the bull call debit spreads and the bull put credit spreads.
In the following analysis, we are choosing to look solely at covered calls. This may be wise because big oil stocks are expected to rise over the long term. An investor can write new call options against the shares they already own each time an option expires. This technique is laid out in the instruction section of the PowerOptions website at covered call help.
Potential Trades:
The following trades have expiration dates in both December and January for a holding period of 87 to 115 days.
| Covered Call Search- Oil and Gas Integrated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Symbol | Stock Price |
OPTION | Strike Info |
Option Bid |
Net Debit |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| XOM | 92.33 (+0.37) | XOMAS | 08 JAN 95.0 (115) | $4.10 | 88.23 | 4.4 | 4.6 | 7.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CVX | 92.48 (+0.60) | CVXAS | 08 JAN 95.0 (115) | $4.10 | 88.38 | 4.4 | 4.6 | 7.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CVX | 92.48 (+0.60) | CVXLS | 07 DEC 95.0 (87) | $3.40 | 89.08 | 3.7 | 3.8 | 6.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BP | 68.52 (-0.81) | BPAN | 08 JAN 70.0 (115) | $2.85 | 65.67 | 4.2 | 4.3 | 6.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| XOM | 92.33 (+0.37) | XOMAR | 08 JAN 90.0 (115) | $6.80 | 85.53 | 7.4 | 5.2 | 5.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CVX | 92.48 (+0.60) | CVXAR | 08 JAN 90.0 (115) | $6.80 | 85.68 | 7.4 | 5 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CVX | 92.48 (+0.60) | CVXLR | 07 DEC 90.0 (87) | $6.10 | 86.38 | 6.6 | 4.2 | 4.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
All of the trades above were found using the SmartSearchXL tool on the PowerOptions website. We created a custom list including XOM, BP and CVX to get the results shown above.
Competitors:
Competitors for XOM include: BP plc (BP), Chevron Corp. (CVX), Abraxas Petroleum Corp. (ABP), Apache Corp. (APA), Anadarko Petroleum Corp. (APC), BPZ Energy Inc. (BZP), CNOOC Ltd. (CEO), ConocoPhillips (COP), Encore Acquisition Co. (EAC), Vaalco Energy Inc. (EGY), El Paso Corp. (EP), Forest Oil Corp. (FST), Hess Corp. (HES), Harvest Natural Resources Inc. (HNR), Holly Corp. (HOC), Cheniere Energy Inc. (LNG), USX – Marathon Group (MRO), Murphy Oil Corp. (MUR), Nexen Inc. (NXY), Occidental Petroleum Corp. (OXY), Petroleo Brasileiro SA (PBR), Pogo Producing Co. (PPP), Range Resources Corp. (RRC), Swift Energy Co. (SFY), Meridian Resources Corp. (The) (TMR), Total SA ADR (TOT), Tesoro Petroleum Corp. (TSO), Valero Energy Corp. (New) (VLO), Williams Companies Inc. (WMB), and XTO Energy Inc. (XTO).
Competitors for CVX include: BP plc (BP), Exxon Mobil Corp. (XOM), Abraxas Petroleum Corp. (ABP), Alon USA Energy Inc. (ALJ), Berry Petroleum Co. (BRY), Cabot Oil & Gas Corp. (COG), ConocoPhillips (COP), McMoran Exploration Co. (MMR), USX – Marathon Group (MRO), Noble Affiliates Inc. (NBL), Pogo Producing Co. (PPP), PetroQuest Energy Inc. (PQ), PetroChina Co. Ltd. (PTR), Sasol Ltd. (SSL), Meridian Resources Corp. (The) (TMR), and Valero Energy Corp. (New) (VLO).
Competitors for BP include: Chevron Corp. (CVX), Exxon Mobil Corp. (XOM), Apache Corp. (APA), Anadarko Petroleum Corp. (APC), Chesapeake Energy Corp. (CHK), ConocoPhillips (COP), Devon Energy Corp. (DVN), Encore Acquisition Co. (EAC), EOG Resources Group (EOG), Forest Oil Corp. (FST), Hess Corp. (HES), Petrohawk Energy Corp. (HK), Hexcel Corp. (HXL), Imperial Oil Ltd. (IMO), Quicksilver Resources Inc. (KWK), Mariner Energy Inc. (ME), Murphy Oil Corp. (MUR), Newfield Exploration Co. (NFX), NuStar Energy L.P. (NS), NuStar GP Holdings LLC (NSH), Nexen Inc. (NXY), Petroleo Brasileiro SA (PBR), Pioneer Natural Resources Co. (PXD), Plains Exploration & Prod. Co. L.P. (PXP), Repsol S.A. ADS (REP), Range Resources Corp. (RRC), St. Mary Land & Exploration Co. (SM), Statoil ASA (STO), Total SA ADR (TOT), Unit Corp. (UNT), Ultra Petroleum Corp. (UPL), Valero Energy Corp. (New) (VLO), Cimarex Energy Co. (XEC), and XTO Energy Inc. (XTO).
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.
[tags] ABP, Abraxas Petroleum Corp., ALJ, Alon USA Energy Inc., APA, Apache Corp., APC, Anadarko Petroleum Corp., BP, British Petroleum Co., BRY, Berry Petroleum Co., BZP, BPZ Energy Inc., CEO, CNOOC Ltd., CHK, Chesapeake Energy Corp., COG, Cabot Oil & Gas Corp., COP, ConocoPhillips, CVX, ChevronTexaco, DVN, Devon Energy Corp., EAC, Encore Acquisition Co., EGY, Vaalco Energy Inc., EOG, EOG Resources Group, EP, El Paso Corp., FST, Forest Oil Corp., HES, Hess Corp., HK, Petrohawk Energy Corp., HNR, Harvest Natural Resources Inc., HOC, Holly Corp., HXL, Hexcel Corp., IMO, Imperial Oil Ltd., KWK, Quicksilver Resources Inc., LNG, Cheniere Energy Inc., ME, Mariner Energy Inc., MMR, McMoran Exploration Co., MRO, USX – Marathon Group, MUR, Murphy Oil Corp., NBL, Noble Affiliates Inc., NFX, Newfield Exploration Co., NS, NuStar Energy L.P., NSH, NuStar GP Holdings LLC, NXY, Nexen Inc., OXY, Occidental Petroleum Corp., PBR, Petroleo Brasileiro SA, PPP, Pogo Producing Co., PQ, PetroQuest Energy Inc., PTR, PetroChina Co. Ltd., PXD, Pioneer Natural Resources Co., PXP, Plains Exploration & Prod. Co. L.P., REP, Repsol S.A. ADS, RRC, Range Resources Corp., SFY, Swift Energy Co., SM, St. Mary Land & Exploration Co., SSL, Sasol Ltd., STO, Statoil ASA, TMR, Meridian Resources Corp. (The), TOT, Total SA ADR, TSO, Tesoro Petroleum Corp., UNT, Unit Corp., UPL, Ultra Petroleum Corp., VLO, Valero Energy Corp. (New), WMB, Williams Companies Inc., XEC, Cimarex Energy Co., XOM, Exxon Mobil Corp., XTO, XTO Energy Inc., bull call debit spreads, covered call investment strategy, investment strategy, poweroptions [/tags]