Exxon Blowout, DO Rallies

Lock in Profits Now

By Bryan Bottarelli
Thursday, October 26, 2006 10:02 AM EST
Thu, 26 Oct 2006 15:02:00 GMT

Dear Bottarelli Research Member,

It appears like our latest upside play on DO December 75 Calls (DO LO) was absolutely the right call. Earlier this week, I hypothesized that the failure of oil companies to continue their streak of record earnings could “disappoint” Wall Street, leading to a sector-wide sell-off. But then two things happened that changed my thinking.

First, oil supplies dramatically decreased -causing a jump in oil prices back above $60 a barrel.

Second, Chevron reported lower earnings yet the stock still rallied. This was a clear signal that Wall Street was not finished pumping oil stocks higher.

Then this morning, Exxon Mobil (XOM – NYSE) posted a third-quarter profit that exceeded Wall Street expectations, which pushed the stock up to a new 52-week high at $72.17. This has caused green ticks across the entire oil patch sector, including Diamond Offshore Drilling (DO – NYSE), which is up over $1.00 as I write. This has pushed your DO December 75 Calls (DO LO) from our $2.85 entry price all the way up to a high of $3.50 on the day, good for a 22.8% gain. I’d consider any trigger price at or above $3.30 a nice profit target so lock in short term gains.

DO

PLAY: Sell your DO December 75 Calls (DO LO) at or above $3.30, good for the day.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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