Weekly Update: August 27, 2014

| August 27, 2014

Weekly Update: August 27, 2014

 

Big Picture Outlook:

Let’s start today’s update with a subscriber question…

Thomas wrote in…

Do you consider the OI (open interest) on these trades? For the PVA trade the OI is only 35. That seems very low to me.

Thanks for writing in Thomas. That’s a great question.

For those of you unaware what open interest is, let me explain…

In a nutshell, open interest is the total number of open or undelivered option positions in a particular strike on any given day. The general rule of thumb for option trading is to steer clear of contracts with low open interest.

Why?

If open interest is low, it means there is very little investor appeal for that particular contract. As a result, the bid/ask spread is usually wide, which makes it tough to enter or exit the contract at a fair price.

In most situations, I try to avoid option contracts with low open interest for that reason.

But there are exceptions, and PVA was one of them…

On the day we initiated our trade, open interest on our PVA October 17, 2014 $15 calls was around 35- very low indeed. However, that same day someone was buying massive amounts of $14, $15, $16, and even $17 calls.

The strong buying on August 22nd helped push the open interest on the $15 calls to what it is today… 1,300.

Here’s why I look for these situations…

When daily volume surges above the current open interest, it’s a clear sign of sudden investor appeal for a particular stock. And when there’s no news to accompany the buying, it tells me a well-informed (and well-heeled) investor may have information the general public isn’t privy to.

In most cases (but not all), a big surge in option volume precedes a run up in the share price of a particular company.

Now, let’s get to our open position updates…

 

Portfolio Recap:

. . . . Spectra Energy (SE) September 19, 2014 $39 Calls

SE is slowly working its way back towards $42. With shares trading at $41.17 today, our $39 calls are trading at a $2.10- a 75% gain from our entry. Expiration is drawing near, but aggressive traders may want to keep holding for a continued rebound.

Remember, SE already hit our first profit target of $42 in June. That means conservative traders may have already booked hefty profits in this trade.

. . . . Boardwalk Pipeline Partners (BWP) Sept. 19, 2014 $16 Calls

BWP is still hovering around the $20 level. In spite of the boring price action this past week, our $16 September calls can still be sold for $3.90- a 136% gain from our entry.

Remember, $20 is our first profit target. As a result, conservative investors may want to take profits. Aggressive investors should consider holding their BWP calls for our second profit target at $24.

. . . . Halcon Resources (HK) October 17, 2014 $7 Calls

Apparently investors are still digesting the recent well results from HK. Shares of the TMS driller haven’t budged since last week.

But listen to this…

Wunderlich Securities applied a “buy” rating and $9 price target on HK earlier this week. As a result, we may see additional upside for this small-cap producer by our expiration in October.

Remember, HK already hit our first profit target of $7.50. As a result, only aggressive investors should be holding HK for a potential rebound.

. . . . Triangle Petroleum (TPLM) October 17, 2014 $10 Calls

TPLM is back at our first profit target of $12. The recent upturn has our $10 calls trading at $2.10, which is a solid 55% gain from our $1.35 entry price.

Remember, TPLM ran well over $12 in June. That really sent our calls to $2.80 a contract, which was a 107% gain. Since conservative investors may have already taken nice profits, only aggressive investors should be holding TPLM calls for our second target at $14.

. . . . Hecla Mining (HL) September 19, 2014 $3.50 Calls

Another boring week in HL…

It’s becoming abundantly clear investors are steering clear of HL until silver prices take a dramatic turn higher. With expiration approaching, we need this silver miner to make a bullish move soon.

Keep holding and remember our profit targets are $4 and $5.50.

. . . . Pan American Silver (PAAS) October 17, 2014 $16 Calls

Unfortunately, there’s absolutely nothing new to report on PAAS. The silver miner is still lingering around $14.

Remember, I suggested conservative investors close this trade last week to conserve capital. If you’re aggressive, keep holding your PAAS calls for higher prices. Our targets are at $17 and $20.

. . . . SandRidge Energy (SD) December 19, 2014 $7 Calls

SD is showing signs of life at the $5 area. The oil and gas explorer jumped to $5.38 in yesterday’s session. Remember, SD crossed our risk control line at $6.60 in early July. That means only aggressive investors should be holding these calls for a rebound.

. . . . Southwestern Energy (SWN) September 19, 2014 $43 Calls

SWN is back above $40 a share. But in spite of the recent rally, we still have a lot of ground to make up in our $43 calls. We’ll need SWN to trade up to $44.83 ($43 strike + $1.83 purchase price) by expiration next month for us to break even on this trade.

Remember, SWN hit our risk control line at $40.85 in late July. That means only aggressive traders should keep holding SWN calls for a potential rebound.

. . . . Noble Energy (NBL) September 19, 2014 $72.50 Calls

NBL spiked above $72 in yesterday’s session. This recent spate of buying activity has me thinking this name is ready to tack on additional gains soon. Just remember, we’ll need to see NBL jump past $73.50 ($72.50 strike + $1.00 purchase price) for this trade to get solidly into the green.

Aggressive traders should keep holding their NBL calls for higher prices. Our profit targets are at $73 and $76.

. . . . Valero Energy (VLO) September 19, 2014 $52.50 Calls

VLO is trying to break to our second profit target at $57. The refiner jumped to a high of $54.61 in today’s session. Our $52.50 calls ran up to a $2.65 bid on Monday, which is a 97% gain from our entry. If you’re conservative, consider taking some profits off the table. If you’re aggressive, hold for higher prices.

. . . . Synergy Resources (SYRG) September 19, 2014 $12.50 Calls

SYRG spiked to $13.60 in today’s session. The rally briefly sent our $12.50 calls up to $1.10, which is a 37% gain from our entry. Expiration is approaching in this trade, but let’s keep holding for a potential run to our first profit target at $14.

. . . . Whiting Petroleum (WLL) October 17, 2014 $90.00 Calls

No doubt about it, WLL is performing like the top-tier Bakken producer it is. The oil explorer ran to a high of $92.22 in yesterday’s session, which is just shy of our first target at $93. Thanks to the quick advance this past week, we’re already sitting on gains of around 60% in our $90 calls.

Keep holding your WLL calls for $93. If all goes as planned, our second profit target at $98 may come knocking soon too!

. . . . Penn Virginia (PVA) October 17, 2014 $15.00 Calls

One thing is for certain…

The price action in PVA further supports the idea that good things are coming to this Eagle Ford explorer. Shares ran to an intra-day high of $15.30 in yesterday’s session.

What could it be?

It’s tough to say. But since George Soros’ fund holds 6 million shares of the producer and has recently stated he’d like to see the company sold to the highest bidder, PVA may be on the verge of a buyout!

Until next time,

Justin Bennett

Remember, if you’d like to comment on how you’re doing in the service, or if you have any questions or concerns, please feel free to drop me an email at [email protected]. I’d like to know how you’re doing!

 

Category: Commodity Trading