Buy Alert: August 21, 2014

| August 21, 2014

Buy Alert: August 21, 2014

 

Option Strategy:

Buy Whiting Petroleum (WLL) October 17, 2014 $90.00 calls for $2.80 or better.

 

Commodity Outlook: Crude Oil

Yesterday’s EIA oil inventory report was undeniably bullish. The government agency reported a steep drawdown of 4.5 million barrels for the week of August 15th.

With crude trading near 7-month lows at $94 a barrel, it’s highly likely we get a substantial bounce out of the commodity soon.

Here’s how we’ll play it…

 

Resource Company: Whiting Petroleum (WLL)

Denver, Colorado based WLL is a top-tier Bakken oil producer. The company hit the headlines a few weeks ago when they announced a buyout of smaller competitor, Kodiak Oil & Gas (KOG).

In spite of the hefty pullback in oil over the past few weeks, WLL is down a mere 5% from its recent $90 highs.

In case you’re unaware, when an oil producer’s stock holds ground while crude prices fall off a cliff- it’s a very good sign of future gains for the producer.

But here’s the best part…

Thanks to the recent KOG acquisition, Wall Street analysts have price targets from $100 all the way up to $114 on WLL.

So here’s what we’ll do…

Buy the WLL October 17, 2014 $90.00 calls for $2.80 or better.

The current bid/ask spread for this contract is $2.45/$2.70.

Do not pay more than $2.80 per contract!

Our official entry price for performance tracking is $2.70. Your price may be higher or lower.

Exit Strategy:

Whiting Petroleum

Remember, we want WLL to trade higher. Our first profit target is $93. We may see additional gains for WLL if crude rebounds to the $98 a barrel area or higher in coming weeks. In such a scenario, WLL may jump to our second profit target at $98.

The risk control price for this trade is $83.00. If WLL trades below that level, conservative investors should consider closing this trade to preserve capital.

 

Category: Commodity Trading