Stock Option Advisory

Hedging and Protecting Oil Investments with Stock Options

The energy sector has never been more volatile and exciting than it is today. Recently oil prices dropped from $145 to around $100 a barrel. But, the roller coaster is just beginning. Many analysts predict that prices will rise and fall many times in the next couple of decades. As we seek to find alternative fuels and energy sources, there’s still a lot of money to be made on oil. With stock options as insurance against loss, you can trade these exciting stocks and increase your portfolio. To limit damage from a dramatic decrease, stock investors can purchase put stock options, a married put is an example of a put option position. As the price of a stock investing position decreases, a put option‘s value increases, limiting a loss for the underlying stock. Additionally, investors can hedge their stock positions with covered calls. A covered call investing position can provide monthly income as well as provide downside protection for a stock investment. Whether you invest in companies who refine oil, drill for oil or who extract bitumen from oil sands, you can potentially make lots of cash from oil and also hedge or protect the investments with stock options.

Valero Energy Corporation (VLO) owns and operates 17 refineries located in the United States, Canada and Aruba that produce conventional gasoline, distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined products. This firm is trading at a P/E of 6.4. Now selling at $34 per share, analysts predict it will sell for $30-$60 per share in the next 12 months. A covered call investing position for Valero is available for September stock options expiration with a potential return of 4.4% and it will only take 5 days to realize the potential return.

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Holly Corporation (HOC) owns refineries in Utah and New Mexico, as well as assets in the gas and petroleum transportation and pipeline business. These pipeline commitments will complement Holly’s Navajo refinery capital improvement projects to increase feedstock flexibility by providing the option for the delivery of heavy Canadian and/or other crude to the Navajo refinery. It has a P/E of 11.8 and analysts predict per share cost to be $25-$63 range 12 months out. For October stock options expiration, a covered calls investing position is available with a 7.7% potential return and 11.4% downside protection. As long as the price of Holly does not drop more than 11.4% at stock options expiration, the position will remain fully profitable.

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Domestic oil services firms not only drill for oil and gas, but also provide a variety of exploration and production services.

Grey Wolf, Inc. (GW) is a provider of contract land drilling services in the United States. The Company’s customers include independent producers, and oil and natural gas companies. As of February 18, 2008, Grey Wolf, Inc. had an increased rig fleet of 121 rigs, all of which were marketed. Analysts have a buy recommendation on this stock investing position, which is still considered inexpensive. Several married put stock options positions are available to protect Grey Wolf and also participate in upside movements of Grey Wolf.

Hercules Offshore, Inc. (HERO) provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry in the United States, Gulf of Mexico and internationally. In July 2007, the Company completed the acquisition of Todco. Todco is a provider of contract drilling and marine services, owned and operated 24 jack-up rigs, 27 barge rigs, three submersible rigs, nine land rigs, one platform rig and a fleet of marine support vessels. Hercules, now selling for about $18 a share, is predicted to increase from $26-$45 in the next 12 months. An October covered call investing position is available for Hercules with a potential return of 4.2% – 33 days.

Canada has 174 billion barrels in proven oil sands reserves. Oil sands, tar sands, or extra heavy oil is a type of bitumen deposit. The sands are naturally occurring mixtures of sand or clay water and an extremely dense form of petroleum called bitumen. Its oil sands reserves place Canada second only to Saudi Arabia in terms of total oil reserves. As you may expect, the removal process is quite costly. As long as oil is over $100 a barrel, it is smart to invest in oil sands.

One of Canada’s major dealers in oil sands, Marathon Oil Corporation (MRO), is engaged in the business of exploration, development and production activities in 11 countries. Currently selling for $43, the analysts rate this company as a strong buy with a possible range of $46-$74 in the next 12 months. There’s a covered calls position available for October for Marathon with a potential return of 5.2%.

Canada’s Suncor Energy (SU) focuses on developing Canada’s Athabasca oil sands. In addition, the Company explores for, acquires, develops, produces and markets crude oil and natural gas, transports and refines crude oil and market petroleum and petrochemical products. Analysts give this versatile company a strong buy with a predicted stock price between $57-$88 in the next 12 months. A covered calls position is available for Suncor for September, 5 days, with a potential return of 3.3%.

Canadian Natural Resources Limited (CNQ) is another independent energy company engaged in the acquisition, exploration, development, production, marketing and sale of crude oil, natural gas liquids (NGLs), natural gas and bitumen production. Within Western Canada, Canadian Natural is developing its Horizon Oil Sands Project in a series of staged development phases. The Horizon Project is designed to produce synthetic crude oil through bitumen mining and upgrading operations. Presently selling for $75/share, analysts predict $83-$130/share in the next 12 months. There’s a covered calls stock options position available for CNQ for September expiration with a potential return of 3.1%, only 5 days.

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.

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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] oil, refine oil, bitumen, oil sands, United States, Canada, Aruba, gasoline, distillates, jet fuel, asphalt, petrochemicals, lubricants, refineries, Utah, New Mexico, petroleum, pipeline, natural gas, Gulf of Mexico, Todco, tar sands, crude oil, CNQ, Canadian Natural Res. Ltd., GW, Grey Wolf Inc., HERO, Hercules Offshore Inc., HOC, Holly Corp., MRO, USX – Marathon Group, SU, Suncor Energy Inc., VLO, Valero Energy Corp. (New), covered call investing, covered call investment strategy, investment strategy, iron condor, poweroptions, stock investing, stock option trading, stock options [/tags]

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