Big Move on DVN

Try to Play August Calls on the Cheap

By Bryan Bottarelli
Wednesday, July 18, 2007 12:34 PM EDT
Wed, 18 Jul 2007 16:34:00 GMT

Dear Bottarelli Research Member,

There’s a big move taking place in Devon Energy (DVN – NYSE), and the chart formation supports an immediate upside call position.

DVN

It was announced today that DVN’s board of directors just approved the formation of a new, publicly-traded master limited partnership (MLP). J. Larry Nichols, the chairman and chief executive officer of DVN said, “The purpose of creating a master limited partnership is to allow the marketplace to more fully measure the performance and contribution of Devon’s marketing and midstream business while applying the proceeds in a manner beneficial to our stockholders."

It’s the last part of this sentence that Wall Street loves: beneficial to our stockholders.You see, Devon expects to utilize a significant portion of the proceeds from this MLP to retire debt of their parent company and repurchase shares of DVN common stock. What’s more, any remaining proceeds would also be available to Devon for dividends. This is all wonderful news if you’re a DVN shareholder. And if you look at today’s chart, you’ll notice that DVN is making en extremely strong bounce right off the 50-day moving average. This is quite a move, especially on a day that the Dow’s dropping over 130 points. Furthermore, thanks to limitations imposed by U.S. securities laws, DVN will not be holding a conference call to discuss these developments. That means DVN could very well extend its upside gains and soon break out to a new 52-week high.

So I tell you what: Let’s try a little bottom-feeding here.

In other words, let’s attempt to pick up the DVN August 80 Calls (DVN HP) anywhere at or under $4.00 per contract. The current bid/ask spread is $4.20 to $4.40 and the high of the day is $5.10. I’m thinking that we can use today’s weakness in the Dow to scoop these contracts on the cheap, so let’s try our best to capitalize on this situation. If you can enter these calls under $4.00, take the trade. If prices to not trigger by the end of the day, we’ll re-evaluate the position tomorrow.

PLAY: Try to enter the DVN August 80 Calls (DVN HP) at or under $4.00, good for the day. If prices do not trigger today, we’ll re-visit this trade tomorrow.

Also, maintain your PSA August 80 Puts (PSA TP).It looks like PSA wants to extend down to a new 52-week low, so let’s be sure to profit off any further weakness. In fact, these puts just traded for $5.80, so it looks like we’re moving in the right direction!

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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