Oil Stock Recovery

Will the Pop Continue? (Yes)

Dear Bottarelli Research Member,

It’s been a wild ride in the oil patch sector this week, but I’ll get to that in just a moment. First, I’d like to follow up on what I said in Monday’s alert concerning the IPO of the New York Mercantile Exchange. I wrote:

“If I were to wager a guess, I’d expect the NYMEX IPO to be huge. Although I don’t recommend stock here in BottarelliResearch, I feel that getting in on this IPO will prove to be a great move.”

As it turns out, this was right on the money. This morning, the NYMEX IPO is going gangbusters. As I write, it’s trading for $144 a share after being priced at $59.00. That’s a 144% opening day gain! If they list an options string for the stock, you better believe we’ll be all over it!

In the meantime, let’s address our open positions, starting with Provident Energy Trust (PVX – NYSE).

Despite yesterday’s oil-induces sell-off, PVX held up remarkably well and closed the trading day in the green. Today the upside has continued, which pushed your PVX March 10 Calls (PVX CB) back up to $1.15 per contract. Let’s maintain our sell orders at $1.25 into next week and see if we get filled. In fact, let’s go ahead and submit that sell order for everyone who made this play, as even the traders who added to the position would lock in a 20% gain selling for $1.25.

PLAY: All PVX traders, sell your PVX March 10 Calls (PVX CB) at or above $1.25, good for next week.

Looking at Southern Copper Corp. (PCU – NYSE), the stock is pounding out a bottom right around the $50 level. As we’ve already seen with this play, PCU can move up in the blink of an eye, so let’s maintain the PCU January 52.5 Calls (PCU AX). In fact, if you have yet to enter this play (or you’d like to add to your position) I consider these contracts a great buy trading currently between $2.40 and $2.50, especially with gold turning an early-session loss into a mid-day gain.

PLAY: Buy more PCU January 52.5 Calls (PCU AX) at or under $2.50, good for the day.

I’m also encouraged by today’s trading action in Sunoco (SUN – NYSE).

As you can see, the stock wants to call the 50-day moving average a strong support point, and any upside momentum could take the shares back up to their 200-day moving average north of $70.00. A move of this magnatude could be more than enough to double the value of your SUN January 70 Calls (SUN AN).In fact, from what I’m hearing, the expiration of the front-month oil contracts could be the catalyst that shoots oil prices back above $58 a barrel, and I want you to be along for this ride. Maintain your SUN January 70 Calls (SUN AN).

The one play that’s not moving in our direction is the WYE December 50 Puts (WYE XJ). As you can see, WYE experienced a big-time drop the day the Democrats took control of the House and the Senate, but has since recovered faster than I expected. With 11 insider sell transactions, I hypothesized that WYE could have some bad news on the horizon, but the surprising resilience is forcing us to close the play down.

And finally, maintain your protective DIA December 120 Puts (DAW XP). I know that these contracts have drifted lower while the Dow continues to push higher, but the moment we eliminate our protection is the moment the Dow will drop 300 points in a week. While I continue to profit from the market’s amazing upside via calls, having these protective puts in our back pocket is an insurance policy that’s worth the premium.

As we move into a holiday-shortened trading week, I’ll look to continue trading in and out of stocks and sectors offering the very best profit potential. Right now, that designation falls into oil and metals, but names like Yahoo (YHOO – NASDAQ), Goldman Sachs (GS – NYSE), and Allegheny Technologies (ATI – NYSE) are all making strong cases for an upside play. Also keep an eye on Nordstrom (JWN – NYSE), which reports earnings on Monday. Although we already took our profits off the table on this play, I expect the high-end retailer to pop on stronger than expected news. We’ll pick it all up next week. Until then…

Lock and load!

Sincerely,