Time to Get Aggressive

Add to RIG March 80 Calls (RIG CP)

By Bryan Bottarelli
Monday, February 12, 2007 1:30 PM EST
Mon, 12 Feb 2007 18:30:00 GMT

Dear Bottarelli Research Member,

After Friday’s oil sector “pop and drop,” we’re witnessing a triple-whammy today in the oil patch sector — and I think it would lead to a great quick-hit trading opportunity on RIG. Let me explain.

First off, oil prices are more than $2.00 lower on news from Saudi Oil Minister Ali Naimi, who signaled that there will be no need for further production cuts or increases in supplies when OPEC meets in March. Now let me tell you straight up — do not believe anything that OPEC says, especially when the comments are making projections months in advance. Oil news like this can change on a daily basis — which means that today’s knee-jerk sell-off could quickly reverse.

Secondly, the oil service sector is experiencing weakness because one of their major components, Diamond Offshore (DO – NYSE) is down big today, but DO’s downside move is not technically driven. You see, DO is gapping down (as shown by the chart) because their special dividend was payable today. This represents a one-time payment which is why the stock is lower, but DO’s downside move should have no effect on the trading patterns of similar drilling companies like RIG. The fact that RIG is trading lower on the OPEC oil price news — combined with the DO special dividend weakness — is potentially setting up a great second-entry opportunity.

DO

And third, don’t forget that RIG reports their Q4 earnings on Wednesday, February 14th at 10:00 am Eastern time. As we’ve seen with past earnings reports from DO, the incredible increase in day rates (which is the oil driller’s way of saying “pricing”) means that drillers like RIG have been able to increase their prices across all classes of drilling rigs — and this should have a positive impact on their stock price. In fact, we may witness a run-up in RIG’s stock price tomorrow — leading into their earnings report — so I’d like to get aggressive here and add to our RIG position at current levels.

RIG

PLAY: Buy more RIG March 80 Calls (RIG CP) at or under $1.65, good for the day. Current bid/ask spread is $1.50 to $1.60. Adjust your protective stop loss to $0.70.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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