Buy Alert: July 8, 2014

| July 8, 2014

Buy Alert: July 8, 2014

 

Option Strategy:

Buy Sandridge Energy (SD) December 19, 2014 $7.00 calls for $0.75 or better.

 

Commodity Outlook: Crude Oil

The price of WTI crude has slowly slipped below $105 a barrel in recent weeks. In today’s session, the commodity is trading just over $103.

But we may see a bullish reversal soon…

Not only does the commodity have bullish technical support at the $102 area, but there are still plenty of geopolitical risks capable of sending crude higher in coming months.

I’ve found the perfect way to play a rebound in crude…

 

Resource Company: Sandridge Energy (SD)

SD is a US based oil and natural gas producer with operations in the Mississippian shale of Oklahoma and Kansas along with the Permian Basin of Texas.

The company’s shares are in a strong uptrend that started in December 2013. And much like crude oil, SD shares are trading near technical support.

Thanks to basic rules of technical analysis, the odds favor a SD rally in coming days.

But here’s the most interesting part of this trade…

SD has buyout rumors surfacing. In case you’re unaware, Spanish oil giant Repsol (REPYY) recently received a $5 billion settlement from Argentina for their stake in energy firm YPF.

Rumor has it Repsol is using these funds to get their hands on SD.

While I usually dismiss buyout rumors as unimportant market chatter, a Repsol for SD deal makes perfect sense. Hedge Fund TPG-Axon has been pushing for a sale of SD ever since they acquired a 9.45% stake in the company last year.

I don’t know about you, but I would love to catch a buyout! Longer-term options are relatively inexpensive in SD, so let’s pick some up.

Here’s what we’ll do…

Purchase the SD December 19, 2014 $7.00 calls for $0.75 or better.

The current bid/ask spread for this contract is $0.61/$0.69.

Do not pay more than $0.75 per contract!

Our official entry price for performance tracking is $0.69. Your price may be higher or lower.

Exit Strategy:

Sandridge Energy

Remember, we want SD to trade higher. Our first profit target is $8.00, while our second is $9.00. Given the strong technical uptrend, along with the ongoing buyout rumors, the odds are in our favor for higher prices in coming months.

The risk control price for this trade is $6.60. If SD trades below that level, conservative investors should consider closing this trade to conserve capital.

Until next time,

Justin Bennett

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.
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