Monday, August 16, 2010

XEC -Covered Call


Fundamentals:

XEC is an investment capitalizing on the stricter off shore regulation and potential rise in oil price over the longer term.

The world has focused on BP and the oil spill on the Gulf of Mexico. Off shore drillers faced tougher and stricter safety regulations. Permits are more difficult to get.

I am bullish on XEC for a number of reasons:

o It is an on shore driller not an offshore driller.
o It is domestic USA. The key property is a 94000 acres west of Oklahoma which is part of Cana-Woodford natural gas shale. It will be insulated from any political problems.
o There is a risk of war starting in Iran as they proceed to fuel their uranium enrichment plant with the help from Russia. If that happen, oil prices will spike.
o Last 3 quarters earnings were stellar. Last quarter earnings tripled its second-quarter earnings on a 71 percent revenue boost. For the quarter that ended June 30, the Denver oil and gas company (NYSE: XEC) posted net income of $124.6 million, or $1.46 per diluted share, up from $38.8 million, or 46 cents a share, in the same months of 2009. First quarter earnings rocked from $0.09 a share a year ago to $2
o Earnings were higher mainly due to successful exploration and resulting increased production. Expect earnings to double or even triple for the next 2 years.

Technicals:



XEC has corrected in the last 2 months.

There is bullish price actions and bouncing from support ( see charts )


Trade:

Buy 500 stock at 68.74
STO Sept 70 SC at 2.6

Cost : 66.74
Profit : (70-68.74)+2.6 = 3.86 or 5.6 % in five weeks.

Primary Exit: Stock went above 70 and shorts called out on expiration.

Secondary Exit:

If stock goes below 66.74, roll the SC to ITM.

If trend downward is strong, add a Put and collar the trade while rolling the SC down or out.
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1 comment:

  1. InnovestorAugust 23, 2010 at 11:06 AM

    I do not like the price action of the stock. Fundamentally, I am still very bullish on the stock. But I believe it will move down to test support at around 62.5

    I decide to close the trade for a small profit of $70.

    I am watching and may do another cover call when it has finished its correction.

    ReplyDelete

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About Me

An engineer by training graduated with B.Sc (hons) and MBA from Strathclyde university in Glasgow, Scotland. Started as an engineer in R&D for 3 years with Philips. Then, worked with DuPont for 13 years. Last job was VP, Marketing for Asia Pacific. Left to start a number of companies in various segments which include a large electronic distribution, a VoIP provider, an internet trading portal in Australia,and an executive training consultancy firm. Have listed companies in NYSE, Australia Stock Exchange, Singapore Stock Exchange Main Board. I was on the Board of Directors for 1 company listed in Thailand, 1 in Singapore and 1 in Australia. Was in the senior management of a company listed in NYSE. Still holding major share positions in the VoIP and Executive training companies. Both are private companies.

Disclaimer

These articles merely reflect the opinions of this author and are by no means a guarantee of future economic conditions, market or stock performance. Though the author strives to provide accurate and relevant data, he sometimes relies on external sources and cannot assure the reader of the accuracy of these external sources. Additionally, these articles are provided for INFORMATIONAL PURPOSES ONLY and are NOT MEANT to provide investment advice to anyone. For investment advice, please consult your professional adviser.