Buy Alert: August 5, 2014
Buy Alert: August 5, 2014
Option Strategy:
Buy Synergy Resources (SYRG) September 19, 2014 $12.50 calls for $1.00 or better.
Commodity Outlook: Crude Oil
No doubt about it, the price action in WTI crude is terrible right now. In spite of ongoing geopolitical concerns, the commodity has dropped $8 a barrel since mid-July.
However…
With oil trading around $97 in today’s session, further downside is relatively limited. If the commodity falls to $95 in coming sessions, there’s a very good chance of a significant bounce.
As a result, I think the odds are in our favor if we look to a very carefully selected oil and gas producer for our next trade.
Here it is…
Resource Company: Synergy Resources(SYRG)
Something very interesting is happening with SYRG today. But before I show you what it is, let me give you a quick recap of the company.
SYRG is a small-cap oil and gas producer with operations in the Wattenberg Field of Colorado’s Denver-Julesburg basin. The company has grown production at a compound annual growth rate of 110% since 2011.
Clearly, this is a quickly growing oil and gas producer.
What’s more, 80% of their revenue mix consists of oil, which is a high margin product.
And here’s where it gets interesting…
SYRG, along with other Colorado based oil producers, jumped higher yesterday in response to anti-fracking legislation being taken off an upcoming ballot.
The news has a well-heeled investor making a big bullish bet in SYRG. In fact, someone purchased 6,000 August $12.50 calls for $0.50 in this morning’s session.
That’s a $300,000 bet SYRG will be over $12.50 by August 15th.
While an August 15th expiration is a bit risky for my tastes, we can follow in the footsteps of this big money trader with September contracts.
So here’s what we’ll do…
Buy the SYRG September 19, 2014 $12.50 calls for $1.00 or better.
The current bid/ask spread for this contract is $0.65/$0.80.
Do not pay more than $1.00 per contract!
Our official entry price for performance tracking is $0.80. Your price may be higher or lower.
Exit Strategy:
Remember, we want SYRG to trade higher. Our first profit target is the $14 resistance area. We may see additional gains for SYRG if WTI crude rebounds to the $100 a barrel area in coming weeks. In such a scenario, SYRG may jump to our second profit target at $15.
The risk control price for this trade is $10.25. If SYRG trades below that level, conservative investors should consider closing this trade to preserve capital.
Category: Commodity Trading
