The Strange Saga of Oil Stocks

Oil Drops $2.77 & Oil Stocks Still Rally

Dear Bottarelli Research Member,

When you’re hot you’re hot.

I suppose this saying best describes oil stocks today — because this powerful segment simply refuses to show any signs of downside movement.

As I write, crude oil is trading down $2.77 as the “war premium” is clearly getting taken out of the elevated oil price levels we witnessed over the last 3 weeks. But despite this big down-move, the major oil names have all continued to trade higher in today’s session!

In many respects, this is why I entered our VLO May 65 Calls (VLO EM). This position handed us a quick and easy 22% gain this morning as the major oil stocks continue to move precipitously higher, so congrats on hitting this nice winner.

At the same time, the quick play that we entered on the ICE May 135 Calls (ICE EW) also handed us a nice winner this morning, so congrats on that gain as well. If you happened to miss this trade — as ICE moved up quickly this morning — I still think the stock chart shows strong upside potential. Maintain your sell orders and I’ll continue to monitor the position. Heck, I may end up re-entering ICE calls if the right situation comes up, as I still feel the stock has plenty of room to move higher into May.

But let’s get back to oil. Because while today’s move worked for our VLO trade, this $2.77 down-move in oil was also why I wanted to maintain our WFT May 45 Puts (WFT QI). To be honest, I would have thought that a crude oil down-move of such magnitude would push this put play back into profitability, but that’s simply not happening. As a result, let’s close the books on this play and move onto the next trade. If you haven’t already done so, sell your WFT May 45 Puts (WFT QI).

In terms of our other positions, I continue to like each trade. Our LMT June 100 Calls (LMT FT) are especially showing signs of life today, as LMT’s $1.36 up-move could be a building block for further upside momentum. If the stock can finally break above the 50-day moving average, we could see a re-test of the $102.50 high, so maintain your calls for more upside.

Also looking strong is Allergan (AGN – NYSE). Your AGN July 115 Calls (AGN GC) handed you a 22% gainer in today’s intra-day action, and I like how the stock is quietly inching its way higher and higher. All we need is one big pop and the momentum players could take this stock a lot higher, so maintain your calls for more upside.

Same goes for your NDAQ June 30 Calls (NQD FF). The stock is quietly plotting along right at the $30 level — but one strong pop above $30 and the stock could tack on $3.00 to $4.00 in a very short period of time. Maintain your calls for more upside on NDAQ as well.

And that brings us to our nemesis, the ITMN July 20 Puts (IQY SD). For some reason, speculative investors continue to bid the stock up — and I can’t figure out why. But here’s where we could come out ahead. You see, my thought is that speculative investors, by nature, are an impatient group. So any signs of continued trouble for ITMN could force these traders to abandon their shares and dump the stock at all costs. If this ever happens, you’ll be glad you’re holding puts.

In terms of any new trading positions, I have a number of exciting opportunities lined up for later this week. But as far as tomorrow and Wednesday go, I’ll be traveling and therefore out of the office. As a result, there will be no trading alerts tomorrow or Wednesday, so please don’t be alarmed by a two-day lack of correspondence. I’ll be back at the command center Thursday — and that’s when we’ll pick back up hitting consistent and timely winners. So until then…

Lock and load!

Sincerely,