The Gate Keeper
Kind of a tricky day, gang. Seemingly quiet. Seemingly. The action across equities markets was almost sort of dull outside of the energy space. That sector backed up more than one percent broadly, while major indices and most of the other sectors stayed fairly close to home. I could talk about Amazon. maybe I’ll leave that for tomorrow’s Recon.
The problem today was weaker WTI Crude. The commodity settled at 58.11, down 1.4% on the day. The positive take-away would be that the $58 level, which is one of those swinging gates that I often speak of had held. Unfortunately, the level has been pierced in after-hours trading. The next swinging gate to the downside is $54 in my opinion. Some smart folks see it as $55.
So, What’s The Problem?
Coming off of the holiday week, most in the business felt that an announced extension to the OPEC/non-OPEC deal would be forthcoming from Vienna this Thursday. Russia is supposedly on board with an extension. Supposedly. Reuters is reporting a planned significant increase in production from Russia’s Sakhalin-1 project come January. On top of that, analysts at Barclay’s today warned that even if an extension were to be announced on Thursday, that the levels of production may not be agreed upon until much later. What the ?? That’s an uncertainty that caught quite a few traders by surprise. Oh, did I mention that the domestic rig count is screaming? Uh oh.
What’s the kid to do? You know he already said he liked energy on national TV. Now, he’s got to figure it out. Three long positions in the space. One highly profitable … VLO. Bought that one is response to the hurricanes. That one had to be sacrificed to pay for the rest. Sold to you. Take badge 986.
Deep in the hole … SLB. Down small …. APA. Have been in the green on that one… twice. Sold some. Like the name a bit too much to sell it all. Need a cold winter so Natty Gas can do some of the lifting. Otherwise….
Doubled down SLB. Rounded out APA. Gonna need some love. Got an idea better than love. We’re going to have to sell (write) some options against these trouble-makers. Just to sort of diffuse the bomb.
You can knock off almost $1.30 off of your net average price by writing SLB March 65 calls. You can also sell APA April 45 calls for nearly 1.60. That’s some serious food for thought kids. Don’t mind taking on some more risk? SLB December 15 60 puts are going for 75 cents, and similar APA December 15 38.50 puts are dragging in a rough 65 cents. Get paid to worry about buying stocks you already like at a discount. Life could be worse.
My preference when writing puts is to keep expiration dates close. I don’t mind throwing the long ball when selling calls. The only risk associated there is lost profit, but a put exercised against you can pour on the hurt. No promises, but I’m leaning toward selling some calls shortly after tomorrow’s opening bell. I may get crazy though. We shall see. Rock and roll.