Wrap – Week Ended 07/13/07

What's so scary about Friday the 13th? I'll tell you it's much less scary if you had puts on the biggest loser of the day in the OIH, Baker Hughes, which warned, and tumbled 6%. Our July $85 puts responded by skyrocketing at the open where we sold for a tidy little 286% one day profit (that was a bit lucky but it was my main call when the gas storage number came out). Friday the 13th was also less scary if you happened to be long the best performer in the OIH, Halliburton, which gave our now 4x position a much needed boost. What a great week! I hope you had as much fun as I did!!!

Somethings Gotta Give Watch. As I said on MN1.com on Wednesday, the EIA's report was a good one for crude and a bad one for gasoline. Check out the chart below!

Here's one opinion from an oil trader late Friday that wraps the above relationship up pretty well:

Frankly a pig of a week, crude finishing some $2 higher over the course of the action and gasoline some 1600 points below its early week’s highs - it is not sustainable. I know this may be getting to be a boring mantra, but now either products have to rip or crude has to fall to maintain a funadamental equilibrium that sees refiners make a turn on the marginal barrel of crude they run - if they don’t, they just don’t run the crude. In Europe some are already cutting runs because they are not, and in the near term we see gasoline imports into the US maintaining high levels given the cracks over the last six weeks, thus we continue to seek a top in crude.

Oh Yes, One Last Thing On Crude: We're Backwardated. Note to speculators: your license to print money has temporarily been suspended. Please find another commodity to play with. Just kidding. And crude can and does rally in backwardated markets but I would point out that a lot of hot money is in this market and they just lost their ability to buy it, sit on it, and automatically reap profits (spread less storage cost). That's got to be a disincentive to own it for some. Come to think of it this has to be frustrating for the IEA who keeping calling for panick in the streets!

CFTC  Net Short Position Hits Another Record. Can you say, the pendulum is swinging too far? Man are they going to be in a hurry when the bearish music stops (hurricane) and their aren't enough sellers to accommodate all that covering.

Gas Directed Rigs Rebound To Record Topping 1,500. Rigs drilling for natural gas hit 1,501, a record since Baker Hughes started splitting out the data in 1987.

Natural Gas Storage Increases By 106 Bcf. At 2,627 Bcf in the ground we're now 3% off all time record storage and 17% above the 5 year average.

Holdings Watch For The Week Ended 07/13/07  CALLS

• CHK got a whole lot of love with their APC JV. Our January '08 calls rallied nicely but I'm nowhere near done with this one. Next week, the Street should pay homage to the deal.

• (OII) sold the July $55s for $2.50 for a 127% gain to the $1.10 purchase on 7/6.

• (BHI) sold the for $0.75 for a 29% loss upon release of the gas storage number on 7/12.

• (HAL) doubled by 2x position in the July 35s upon announcement of the increased buyback and after Cramer had been dumping on the stock for two days. We're now 4x here with a $0.775 cost. Last bid $0.75.  Cheap, whether it be refining, E&P or oil service increasingly looks to be outperforming glitzier but expensive stories going into earnings.

• (NBR) Bought a 2x position in out of the money ($35 July calls) for $0.40 to protect myself in case I'm wrong (see put section below) and they get taken out.

PUTS

• (BHI) - July 85s were taken with a 30 seconds of the gas storage number for $0.35. BHI said it wouldn't make consensus due to Canadian weakness and we sold on the open for $1.35. a one day gain of almost 300%. I understand some of you sold in the $1.70 to $1.80 and my congratulations to you but I've got to go with Phil on the "selling into the initial excitement rule". Four out of five times you're going to be very pleased!

• (SWN) bought July $45s for a quick trade on the ng number for $1.15. Last bid $1.35.

• (FTO) bought the August 50s for $2.90. Last bid $3.10.

• (TSO) No adds to my current small position fo $60s and $57.50s. but they did come back to life and as Tupp put it, it continues to form a delicious double top!

• (NBR) Added the August $32.50s on Friday for $1.60 in the wake of the Baker Hughes announcement. This didn't work out so well later as takeout rumors once again surfaced driving the stock. Despite a $0.70 (2%) rally in the shares since my early morning put purchase last bid was $1.60 due to the increased volatility. I'll be pretty quick on the trigger as once volatility dies, so do these puts.

Other stocks of Interest

• (CLR) On Wednesday I was asked to give a target on Continental Resources. Here was my response in comments Wednesday night:

If they hit the mid point of their guidance I’d say they’ll do $2.25 to $2.50 CFPS as long as commodity prices hold up (I went with a pretty conservative realized oil price of $60 for the year which they may beat with those hedges and higher production as the year goes by). You could easily put a 7.5x on that CFPS which gives you roughly $18 to $20. The multiple could be higher given their growth rate, tight control of op ex, and those nice new hedges but why push things, eh?

CLR closed at $18.15, up 14% on the week.

• (NFX) continues to move higher with no news. Looks like they're starting to get a little more respect and perhaps there's talk or at least speculation that recent divestment announcements (North Sea and Bohai Bay) are close to fruition. This is one of the three stocks I highlighted in our second Alwaysanoption Newsletter. Here's a link to a complimentary download: july0711.pdf. Enjoy it while it's free.

In closing just let me say, Man This Was A Fun Week! Thanks so much for the kind words and helpful suggestions. Let's do exactly this week again next week except let's see if we can't get the refining sector to come to terms with that whole oil / gasoline relationship. I know it's tough and that those stocks are just supposed to go higher everyday but let's give it a go folks! Have a great weekend!