Oil has recently been selling at an all time high. Gasoline prices are draining American consumers directly when they fill up, and indirectly through the added expense of shipping all of the products they buy. In response, the President has lifted the ban on additional offshore oil drilling that had been imposed by his father in an earlier and very different time.
Action will be needed by Congress before that drilling can take place. Many of the Congressional leadership have been opposed to opening the offshore fields, but opinion polls show that their constituents are changing their minds, so the Congress may too.
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If that happens, opportunities will be created for companies that will do the drilling, and for others that will supply what the drillers need. These companies have seen fluctuations in their market value because of the run up in oil, but they now have the potential for further gains. In recent weeks, weakness in oil has resulted in many of them falling a little, which could be a buying opportunity.
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Let’s take a look at some of the potential winners.
Transocean, Inc. (RIG) certainly has the right ticker symbol for this sector, RIG. Transocean provides offshore contract drilling services, providing drilling rigs, related equipment, and work crews primarily on a day rate basis. The company owns and operates approximately 82 mobile offshore and barge drilling units. Transocean has fluctuated quite a bit this year, starting the year at $145 per share, falling to $122, rising to $161, and recently closing back to about where it started. Fortunately, stock options are available on RIG and a covered call investing position with August expiration is available for RIG with a potential return of 4%. The potential return for the RIG covered call position could be realized in 25 days. Additionally, the covered call position for RIG has 4.7% downside protection, so as long as the stock price of RIG does not drop more than 4.7% at expiration, the position will be profitable.
Helmerich & Payne
Helmerich & Payne, Inc. (HP) also engages in contract drilling, providing drilling rigs, equipment, personnel, and camps on a contract basis to explore for and develop both onshore areas, as well as from fixed platforms, tension-leg platforms, and spars in offshore areas. The company owns approximately 11 U.S. platform rigs located in the Gulf of Mexico, and 27 international rigs. In the past year, Helmerich & Payne’s stock price increased from about $35 per share to over $77, before falling off to about $64 recently. Again, stock options are available on HP and a covered call investing position with August expiration is available for HP with a potential return of 4.7%.
Diamond Offshore Drilling
Diamond Offshore Drilling, Inc., (DO) also operates as an offshore oil and gas drilling contractor worldwide. It offers a range of services in various markets, including deep water, harsh environment, conventional semi-submersible, and jack-up markets. The company has a fleet of approximately 44 offshore rigs. Its price this year has been another tale of starting at about $145, falling, in this case to about $106, rising back to $145, and recently settling down to $122. A covered call investing position is available for DO with a potential return of 4.6%. The time frame for the covered call position’s potential return is 25 days.
PHI Inc, (PHII) transports personnel, parts and equipment to, from and among offshore platforms for customers engaged in exploration, development and production of oil and gas. More offshore drilling requires more people and stuff to be moved around. PHI has seen slow steady growth this year, from about $31 to about $40. Unfortunately, stock options are not available on PHII.
McDermott International, Inc., (MDR) is a diversified energy services company. One of its three business segments concentrates on offshore oil and gas construction. It offers front-end design and detailed engineering, fabrication, and installation of offshore drilling and production facilities; and installation of marine pipelines and sub sea production systems. It also provides project management and procurement services. The company’s stock price has fluctuated this year, starting at about $59, dropping to about $42, rising to about $66, before closing recently at $54. A covered calls position is available for MDO with August expiration and the position has a potential return of 3.8%.
Gulf Island Fabrication
Gulf Island Fabrication, Inc., (GIFI) fabricates offshore drilling and production platforms, and various specialized structures for their use. It also provides services, including offshore interconnect pipe hook-up and inshore marine construction, as well as manufacture and repair of related equipment. Gulf Island started the year at about $31, rose to almost $52, before falling back to close at $44 recently. A nice covered call position for August expiration is available for GIFI with 4.6% potential return and 9.5% downside protection.
The oil industry has been very volatile over the last few months and the volatility appears be continuing going forward. Covered call investors can take advantage of the volatility by positioning themselves for generating a stream of income. Covered call investors have the capability to take advantage of the growth in offshore drilling and potentially grow their investment accounts.
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[tags] Oil, Gasoline, Congress, DO, Diamond Offshore Drilling Inc., GIFI, Gulf Island Fabrication Inc., HP, Helmerich & Payne Inc., MDR, McDermott Intl. Inc., RIG, Transocean Offshore Inc., covered call investing, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]