Buy Alert: July 31, 2014

| July 31, 2014

Buy Alert: July 31, 2014


Option Strategy:

Buy Valero Energy (VLO) September 19, 2014 $52.50 calls for $1.45 or better.


Commodity Outlook: Crude Oil

No doubt about it, it was a sea of red in the markets today.

Heavy selling took major indexes sharply lower after investors learned of a big jump in jobless claims. There was really no place to hide. Nearly everything was taken to the woodshed, so to speak.

Even crude succumbed to the selling…

WTI dropped below $99 a barrel, which is the lowest the commodity has traded since March. As I write, the commodity is crossing the tape at $98.05.

While the WTI downturn is bad news for exploration and production companies, it’s great news for US refiners.

Here’s a great way to play the downturn in WTI…


Resource Company: Valero Energy (VLO)

Despite hefty selling in nearly every industry today, refiners actually finished strongly in the green. In fact, VLO closed higher by 1.48%.


Not only did the US refiner report strong earnings last night, but the spread between Brent and WTI is widening again.

In case you’re unaware, a widening spread between these two price benchmarks is great for US refiners since it results in higher margins.

And here’s the deal…

Given the growing conflict in Ukraine, it’s likely this spread widens even further in coming weeks. In other words, Brent should stay supported while WTI is at risk of falling further.

As the spread widens, VLO and other refiners will likely rally.

Don’t delay in buying the VLO September 19, 2014 $52.50 calls for $1.45 or better.

The current bid/ask spread for this contract is $1.30/$1.34.

Do not pay more than $1.45 per contract!

Our official entry price for performance tracking is $1.34. Your price may be higher or lower.

Exit Strategy:

Valero Energy

Remember, we want VLO to trade higher. Our first profit target is the $54 resistance area. We may see additional gains for VLO if WTI crude drops to the $92 area or lower. In such a scenario, VLO may jump to our second profit target at $57.

The risk control price for this trade is $47.50. If VLO trades 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.