EOT Trade Alert – October 24, 2008
October 24, 2008
Trade Alert:
Buy BP December 2008 $35 PUTS at $2.45 or better (BPXG)
Company Background:
BP PLC (BP) is a global energy supplier based out of London, England. The company’s fuels are used for transportation, energy for heat and light, and petrochemicals products. The company operates in two segments, Exploration and Production, and Refining and Marketing.
Short-Term Catalyst:
Just this week I had the opportunity to visit with two of my contacts from the investment banking and Venture capital community. Both of my contacts are well versed in the current markets, and both actively work in the alternative energy industry.
This gives them a unique position. They straddle several areas of knowledge including traditional energy, alternative energy, and technology. All of these areas have an impact on their specific businesses. Needless to say they are well versed in current supply demand issues and other nuances of the oil and gas markets.
I proposed an interesting question to both of them.
“Oil’s fallen from around $150 to around $70. Could we see it fall to $20 or $30?”
Their responses were telling. They didn’t blink when they said “Yes.” Their reasons were different, and I won’t get into it here, but the conclusion was the same. Lower oil prices are in our future. Neither think it will be permanent, but in the short-term much lower price levels are likely.
As we predicted a few weeks ago oil prices have been falling. That’s why we put on the Chevron trade (which by the way made us more than 700%). I believe this trend is continuing, and I’ve found another way to profit.
British Petroleum – now know as BP – is a global supplier of energy. The stock is closely tied to the price of oil. A continued fall will not be good for their financial results. As a result I see the stock price falling further.
On a technical basis, the company’s stock is trading well below its 50 day moving average. The stock’s 200 day moving average just started turning down. Both of these indicators point to a continued decline in the stock price.
Trade Details:
| Option Ticker Symbol: | BPXG |
| Underlying Stock Symbol: | BP |
| Current Bid-Ask Price: | $2.10 – $2.25 |
| Option “Buy Up To” Price: | $2.45 |
| Break-Even On Stock At Expiration: | $32.55 |
| Maximum Risk Per Contract: | $225 |
Exit Strategy:
BP is trading at $41.73 a share. The strongest resistance levels will be at $47.50 and $52.50. Remember we want this stock to move lower. As the stock moves lower it will reach support just over $37.50 and at $35.
Chart:
Category: EOT Trade Alert
