Revisiting SLB

Next Week, Crank Up Big Oil

Dear Bottarelli Research Member,

Although we still haven’t put the finishing touches on this week’s trading, I’d like to take a brief moment and set up what we have on tap for next week, and I’d like to set this table by taking another look at Schlumberger (SLB – NYSE).

As you know, we just took a gain of 34.62% on the SLB November 60 Calls (SLB KL). And it’s a good thing we sold, because as you can see below, the stock is off $1.95 in today’s trading action.

Here’s the thing: Starting next week, the earnings announcements transition over from tech stocks and big pharma stocks to oil stocks — which means Houston, Texas (home of several major oil companies) will be under a microscope all week long.

On Wednesday, ConocoPhillips (COP — NYSE) is expected to announce earnings of $2.40 per share on revenue of $53 billion, a 10% decline from a year ago because of their acquisition of Burlington.

On Thursday, Exxon Mobil (XOM – NYSE) is expected to post earnings of $1.59 per share and revenue of $112.4 billion, up 20% and 12%, respectively, from the year-ago period but off almost 8% from their record earnings in the second quarter of 2006.

On Friday, Chevron (CVX – NYSE) is expected announce earnings of $2.04 per share on revenue of $60.77 billion.

As you know probably know, the past earnings reports coming out of the oil patch sector have resulted in monster earnings. But since those monster earnings reports, oil prices have come down from $77 in July to $58 today, and that’s why my inclination is that all the major oil companies won’t be reporting the blockbuster earnings that Wall Street has come to love, and in many ways, expectout of big oil.

Now let’s be straight, I’m sure the numbers will still be staggering, as big oil executives literally heat their 60,000 square foot homes by burning $100 bills (Although this is a sarcastic comment, I secretly wonder if it’s true. But I digress). What I’m saying is that we could witness a situation in which a number out of COP, XOM, or CVX that fails to break a new record could be considered a disappointment — resulting in a broad-based down-move in the oil sector. That means we could have two potential trading strategies in the works.

One, we could play shorter-term OIH puts based on an earnings disappointment.

Two, we could use any subsequent sell-off as a great entry price to buy longer-dated calls on any number of major oil companies for dirt cheap.

As big oil gets ready to reveal their latest quarterly results, I wanted you to get prepared to play the coming news in the most profitable way possible. I’m sure I’ll have more on this next week. Until then, lock and load!

A QUICK ADMIN NOTE: When it comes to “lock and load” trading, it’s quite clear that timing is everything. The moment I hit the “send” button on an alert, I expect it to hit your inbox within seconds. In an effort to increase the deliverability of our e-mails, we recently upgraded our e-mail server so alerts reach your inbox faster than ever. While we made every effort to ensure this transition would be as seamless as possible, our hosting company reported a few technical hiccups along the way, which is why some of you (particularly AOL and Road Runner users) may have noticed some irregular e-mail behavior over the last 24 hours. Please know that the issue has now been resolved and all e-mails should be delivered in a timely fashion, without interruption. Please remember to add alert@bottarelliresearch.com to your known sender’s list and/or address book so all future Bottarelli Research alerts find their way to your inbox, not your spam or bulk mail folder. Plus, remember that you can always reference the Members Area of the Web site for all trading alerts as well.

Sincerely,