Oil related companies

[hendi_alex]

Bought small amount of SLB today plus added small increment of ESV. Closed calls on OIH and COP. I expect most oil related stocks to not bottom before Oct or Nov but since I don't know for sure, will continue to nibble from time to time. Also will continue to sell calls on several positions during spikes.

[EricL]

I think we are going to have one last flush out on crude here in the next month or two and then start heading higher from there. Rigs have been dropping at an amazing pace and ND production seems to have peaked, I think other basins will be following in the next couple months.

I would rank my prospects for future purchases of the majors along the lines of XOM>CVX>OXY>COP>BP as far as safety of the dividend goes. If oil stays down for an extended time I could see potential cuts from BP and possibly COP as BP's earnings are no where near covering the dividend and COP doesn't either since they spun off PSX and don't have the diversification of earnings anymore.

More important than ever to stick to quality and those with strong balance sheets. I expect some of the weaker players (WLL? OAS?) to be swallowed up in the next couple months as those with high debt loads are going to be running into problems once hedges and cash reserves run out and banks won't extend anymore credit.

[Turvok]

I bought CVX a couple weeks ago when it dipped to $102. Pretty sure CVX will be able to maintain the dividend and will enjoy the benefits of a lower price right now.

[hendi_alex]

On the bounce, sold another batch of calls on COP and OIH. Brought in about $1400 plus gives more upside. I don't care to keep either one of these long term, but will continue to milk the volatility until the shares get called or theplay no longer works.

[Turvok]

I need to learn how to play options. They seem like a decent way to make extra money

[Kerim]

(03-21-2015, 04:19 PM)Turvok Wrote: I need to learn how to play options. They seem like a decent way to LOSE extra money

Edited that up for you!

[hendi_alex]

I don't really know how to play options, but do use them to increase the cash flow/decrease downside risk quite often. I bought a lot of energy stocks during the mid December drop. Given the massive volatility, call contract prices were then and remain quite rich.

I bought 200 shares of COP on 12/8 for $65.53. May $67.50 calls were immediately sold for $3.40 bringing in a net of $671. During price weakness on 3/13, the calls were closed for $128, netting $543 from the original contract. On 3/18 there was a price spike, so Aug $65 calls were sold for $3.15, netting $621. So the total from call income on this position is $1164 plus one dividend of $146 has hit the pot. Total cash flow has been 10% in under 4 months. Cash out of pocket at this time is $11,802 or $59 per share. IMO the call writing has turned this into a huge cash cow compared to settling for the dividends alone. It has also provided a decent buffer for downside protection.

OIH was bought on 12/12 for 34.29. I was not so eager to sell calls, but rather decided to wait on a decent bounce. On 12/26 the share price had moved back up a good bit, so $37 calls were sold for $3.34, netting $659. On 3/13 during price weakness the calls were closed for $139, netting $520 of the original contract price. On 3/18 the share price enjoyed a nice bounce, so calls were sold once again, this time $33 calls were sold for $3, netting $591. Total call income is now $1111 plus one dividend of $171. So in under 3 months this position has kicked out cash flow of 18.6%. $5582 is out of pocket for a share price of $27.91. That gives a very nice buffer given the current market price of $33.30.

Covered call investing is not without its risks, but the method described above makes for a fairly conservative approach that really juices the cash flow from the position. Eventually the shares will get called, or the play will just no longer work for one reason or another. But there are always other fish to fry, no matter what direction the current covered call play goes.

[Dividend Watcher]

(03-21-2015, 06:42 PM)Kerim Wrote:

(03-21-2015, 04:19 PM)Turvok Wrote: I need to learn how to play options. They seem like a decent way to LOSE extra money

Edited that up for you!

Subtle, Kerim, Subtle.    

[daat99]

(03-21-2015, 06:42 PM)Kerim Wrote:

(03-21-2015, 04:19 PM)Turvok Wrote: I need to learn how to play options. They seem like a decent way to LOSE extra money

Edited that up for you!

I 2nd that edit!

[Turvok]

LOL Thanks Kerim! :-)

[EricL]

I'm calling it. I think we have seen the bottom in WTI oil prices.

No idea how long it will take to rise, but I don't think we will see the low $40's again this year.

Thoughts worth what you paid for them! =)

[ChadR]

EricL you might be right. I have a lot of tax clients that are in the oil & gas industry. They are all moaning that it's going to keep getting worse and prices will be horrible for years. That's usually a sign that we're at a bottom. Also once they are all happy and the boom will go on forever, that's usually when it's about to peak.