EOT Trade Alert – June 16, 2010

| June 16, 2010

June 16, 2010

Trade Alert:

   Buy RIG Aug 18 2010 $40.00 Puts at $3.75 or better

Company Background:

Transocean (RIG) drills offshore oil and gas wells.

Short-Term Catalyst:

Did you hear it yesterday?  It was the death knell for the offshore drilling industry.

‘Big Oil’ CEOs were paraded in front of Congress yesterday for their public lashing. Congressmen and women hammered them with questions about the oil spill in the Gulf of Mexico.

Rex Tillerson, head of Exxon Mobil said, “When these things happen, we are not well equipped to deal with them.”

He went onto say, “When they happen, it is a fact that we’re not well equipped to prevent any and all damage.  There will be damage occurring.”

If oil companies can’t control or prevent the damage when things go wrong, they won’t be allowed to drill.

There’s already a six month moratorium on drilling in U.S. waters.  Will the ban be lifted if ‘Big Oil’ can’t find a solution to deal with another disaster?  I don’t think so.

Right now the drilling moratorium is only affecting RIG’s U.S. based business.  What if more countries ban drilling?  If we have to wait for a legitimate plan to deal with the next disaster, it could be years!

The downside risk for RIG is huge right now.

Over the last week, RIG’s “dead cat bounce” pushed the stock price higher.  It’s created a great entry point to profit from RIG’s further fall.

Trade Details:

Underlying Stock Symbol: RIG
Current Bid-Ask Price: $3.00 – $3.30
Option “Buy Up To” Price: $3.75
Break-Even On Stock At Expiration: $36.25
Maximum Risk Per Contract: $375

Exit Strategy:

RIG is trading at $47.76 per share.  Resistance levels will be at $56.75 and again at $64.  Remember, we want this stock to move lower.  Support levels will be at $40 and $35.  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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