EOT Trade Alert – March 25, 2011

| March 25, 2011

March 25, 2011

Trade Alert:

   Buy HP June 2011 $70 Calls at $2.25 or better

Company Background:

Helmerich & Payne (HP) is a major land and offshore oil & gas drilling contractor in North and South America.  They supply drilling rigs, equipment, personnel, and camps to explore and develop oil & gas.

Short-Term Catalyst:

The key oil producing regions of the Middle East and Africa are a mess.  The political upheaval and the violent anti-government conflicts are disrupting oil supplies.

The risk of this situation getting worse before it gets better has built a sizeable fear premium into oil prices.  The more ominous the situation becomes, the higher the fear premium will climb.

The bottom line is oil prices are going up until fighting stops and oil starts flowing.

That’s bad news for consumers when they fuel up at the pump.  But it’s great news for contract oil drillers.

You see, the higher oil prices climb, the more money companies are willing to spend drilling new wells and finding new supplies.  So it increases demand for contract oil drillers.  And that means they can charge more for their services and keep more rigs in operation.

It’s even better news for companies like Helmerich & Payne (HP) who primarily operate in North America.  They’re far away from the violence and disruptions of the Middle East and Africa.

What’s more, HP’s drilling technology is top of the line.

Their FlexRigs allow HP to drill quicker and more efficiently and command higher dayrates than their competition.  On average, HP can drill eleven more wells per year than their competition with a single rig.

That’s a huge advantage…

And to top it off, HP is an expert in horizontal drilling.  This is the type of expertise their customers demand to unlock oil & gas locked in massive shale formations found throughout America.  As of February, 85% of HP’s gas rigs and 54% of their oil rigs on land were drilling horizontally.

As a result, HP has grown their market share of active rigs in the lower 48 states from 3% in 2001 to an industry best 11%.

Simply put, HP is winning the competition among land based oil & gas drillers in North America.  Let’s grab call options on HP now to profit from higher oil prices and increased drilling activity in North America.

Trade Details:

Underlying Stock Symbol: HP
Current Bid-Ask Price: $1.95 – $2.15
Option “Buy Up To” Price: $2.25
Break-Even On Stock At Expiration: $72.25
Maximum Risk Per Contract: $225

Exit Strategy:

HP is trading at $65.44 per share.  Resistance levels will be at $70 and again at $74.  Remember, we want this stock to move higher.  Support levels will be at $59 and $52.  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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