Buy Alert: April 24, 2014

| April 24, 2014

Buy Alert:  April 24, 2014


Option Strategy:

Buy PDC Energy (PDCE) June 20, 2014 $70.00 Calls for $2.30 or better.


Commodity Outlook: Oil

The Ukrainian situation is turning downright ugly… 

Ukrainian special forces are taking back government buildings from pro-Russian separatists.  In response, Putin has Russian equipment and personnel massing on the Eastern Ukraine borders.

Unfortunately, I believe Russia will invade Eastern Ukraine within the next few weeks.  If it does, the US and its allies will respond with hefty sanctions towards Russia.

Since Russia is the second largest crude exporter in the world, sanctions may take much needed oil supply off the global market.

Brent crude, the European benchmark, is breaking above technical resistance at $110 and will likely run to 52-week highs near $117 if Russia invades.  Not surprisingly, WTI will likely follow Brent higher.

No doubt about it, energy investors are watching this situation very closely.

Here’s a great way to capitalize on further upside in global oil prices.


Resource Company:  PDC Energy (PDCE)

PDCE is a US based oil and gas producer with exposure to three highly promising shale fields- the Wattenburg, Utica, and Marcellus.

Over the past few months, shares of the company have been trading in a relatively tight range between $58 and $63.  If global oil prices break higher on Ukraine tensions, we’ll likely see PDCE break out of the trading range and run to the $70 area.

And that’s not all…

Wall Street analysts think PDCE is deeply undervalued at current levels. In fact, RBC Capital has a $76 price target on shares while MLV & Co. sees it running to $84!

Given the current situation, I think there’s solid upside coming for PDCE.

So here’s what we’ll do…

Let’s buy the PDCE June 20, 2014 $70.00 Calls for $2.30 or better. 

The current bid/ask spread for this contract is $1.50/$2.20. 

Pay no more than $2.30 per contract!

Our official entry price for performance tracking is $2.20.  Your price may be higher or lower.


Exit Strategy:

PDC Energy

Remember, we want PDCE to trade higher.  Our first profit target is the $70.00 technical resistance area.  We could see additional upside for PDCE if WTI breaks towards the summer highs of 2013 near $110 a barrel.  In such a scenario, PDCE may jump to our second profit target of $73.00.

The risk control price is $59.00.  If PDCE falls below that level, conservative investors should consider closing this trade to conserve capital.


Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.