EOT Trade Alert – August 11, 2011

| August 11, 2011

August 11, 2011

Trade Alert:

   Buy BAS October 2011 $25 Calls at $3.25 or better

Company Background:

Basic Energy Services (BAS) provides essential services to oil and gas producers and drilling companies in the US.

Short-Term Catalyst:

It’s been an ugly few weeks for stocks…

But it looks like the S&P 500 is putting in a bottom.

Over the last few days, we’ve seen some chaotic selling.  But the S&P 500 is holding at the key support zone around 1,120.  This looks like a fantastic buying opportunity to me…

One area I see bouncing back quickly is oil.

Here’s why…

Even though economic growth has slowed, demand for oil has remained strong.  Just look at the most recent Department of Energy inventory numbers.  They were down across the board!

Crude oil, gasoline, and distillate inventories were all lower than expected.  And US refineries were actually cranking out more supply at the same time.

Simply put, demand for oil hasn’t declined in the US.  Yet, the price of crude oil has fallen from $100 per barrel in July to around $80 today.  That’s a 20% correction without any change in supply or demand.

Obviously, oil and gas stocks have taken a beating as the price of oil fell and the stock market cratered.

Now the panic fueled selloff is subsiding and rational traders are starting to take advantage of the huge sale in oil stocks.  I think we’ll see an amazing rally in oil and gas stocks as oil prices jump back into the mid-$90s in short order.

One stock that should bounce back quickly is BAS.  This small oil and gas services company could easily be trading for $40 in a few months.

You see, BAS is enjoying strong growth.  They operate in the hottest oil and gas producing regions of the US.  Demand for their services increased in July.  And their recent acquisition is already contributing to revenue and EBITDA.

What’s more, the chart looks great too.  BAS is in a strong uptrend.  After more than tripling in value off the September lows, it’s pulled back to support at the 200-day moving average.

This looks like a great opportunity to pick up a fast growing oil services company at a huge discount… Let’s grab call options on BAS now to profit as oil and gas stocks rebound.

Trade Details:

Underlying Stock Symbol: BAS
Current Bid-Ask Price: $2.30 – $2.95
Option “Buy Up To” Price: $3.25
Break-Even On Stock At Expiration: $28.25
Maximum Risk Per Contract: $325

Exit Strategy:

BAS is trading at $23.34 per share.  Resistance levels will be at $30 and again at $40. Remember, we want this stock to move higher.  Support levels will be at $20 and $15. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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