EOT Trade Alert – May 28, 2009

| May 28, 2009

May 28, 2009

Trade Alert:

   Buy MRO October 2009 $35 Calls at $1.90 or better (MROJG)

Company Background:

Marathon Oil (MRO) is an integrated oil services company.  They’re involved in exploration, refining, marketing, and transportation of petroleum products worldwide.

Short-Term Catalyst:

Oil was in a virtual freefall since June 2008.  It bottomed out in the low $30s in late February.

The fear was shrinking consumer demand.

Then OPEC announced productions cuts and this time actually followed through.  Their actions have helped oil prices rebound back to above $60.

Then today… a report today from the Energy Information Administration (EIA) shows crude oil inventories are down.

Everyone was expecting an increase of 1.8 million barrels.  The drop of 5.4 million barrels caught a lot of investors off guard.  It’s the third week in a row inventories have been going lower (this means demand is climbing).

The rally in oil is real and it’s not going away anytime soon.  Especially with the summer driving season just getting underway in the entire northern hemisphere.

This is great news for the oil companies.

Marathon is well positioned to benefit from higher prices.  The company operates around the globe… but more importantly, they have good exposure to Canadian oil sands.  (A production area that becomes profitable at higher oil prices.)

Trade Details:

Option Ticker Symbol: MROJG
Underlying Stock Symbol: MRO
Current Bid-Ask Price: $1.75 – $1.85
Option “Buy Up To” Price: $1.95
Break-Even On Stock At Expiration: $36.95
Maximum Risk Per Contract: $195

Exit Strategy:

MRO is trading at $31.25 per share.  Resistance levels will be at $35 and again at $40. Remember, we want this stock to move higher.  Support levels will be at $26 and $25.25.  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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