An Important Break-Out

VLO Pushing Higher

By Bryan Bottarelli
Wednesday, February 21, 2007 12:14 PM EST
Wed, 21 Feb 2007 17:14:00 GMT

Dear Bottarelli Research Member,

Valero Energy (VLO – NYSE) is a stock that I watch rather closely, and today could prove to be a critical break-out point. Based out of San Antonio, VLO produces reformulated and conventional gasoline, diesel fuel, jet fuel, asphalt, petrochemicals, lubricants, and other refined products.

Acting as the largest refiner in North America, VLO operates 16 refineries in North America and one in Aruba — and that’s why VLO is now experiencing upside momentum. You very well know that Wall Street thinks at least 6 months ahead — and now that the North American cold streak is coming to an end, you’re beginning to hear a lot of talk about the upcoming summer driving season. And this, of course, brings investor interest squarely to VLO.

VLO

As you can see by the chart, the stock has just now broken above its 200-day moving average at $56.00. This is a very strong indication that VLO could now rally up to $62 or $64 per share in a short period of time. And when I look at the VLO options string, I see an extremely well-priced call in the VLO June 60 Calls (VLO FL). Currently trading between $2.45 and $2.55 per contract, these calls could quickly double in price of VLO moves up to $64. And since we’re carrying this position into June, we have plenty of time for this upside move to take place. So let’s get positioned now:

PLAY: Buy the VLO June 60 Calls (VLO FL) at or under $2.65, good for the day. Place a protective stop loss at $1.40.

*TACTICAL NOTE: VLO has been in the news recently due to a fire in their McKee refinery — which is one of six VLO operates in Texas. From what I’ve read, the fire is not as bad as previously thought, and all of the refinery’s employees returned to work yesterday. The damage from the fire was contained to a propane deasphalting unit, so any knee-jerk selling pressure should be gone by now.

Also moving higher today is Transocean (RIG — NYSE), but the RIG March 80 Calls (RIG CP) continue to trade for the bargain-basement price of $0.90 per contract. As a quick and speculative upside play, let’s go ahead and add these calls to our ledger as well, since a continued upside move in RIG (which is still believe is on the horizon) could quickly push these contracts aggressively higher.

RIG

PLAY: Buy the RIG March 80 Calls (RIG CP) at or under $1.00, good for the day. Place a protective stop loss at $0.50.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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