FTI. I do love FTI...

So there is a rotation out of the most profitable trade in the business for the last 8 months... Short Financials, long Oil. This is providing great opportunities for those that believe strong y-o-y earnings improvement and strong guidance for the future is better than investing in companies that didn't lose 4 billion in a quarter but instead lost 3 billion.

This being said I have started to accumulate some September Calls for the earnings call on Thursday after the bell.


I have been tracking FTI for some time and it has been in a pretty tight trading range along with the majority of the Oil Services stocks. One interesting action to note was a two day high volume run that put it into its current trading range. So we know this stock can run and it has attracting some big money investors. We just so happen to be near or right at the price the accumulation I have pointed out. Being that this is the first earnings call since this heavy accumulation, I like our chances for another big move after we get some solid evidence of strong earnings.

I like that this stock is hanging out near the lower portion of its channel which should maximize out run up. I see on a positive earnings call 76 or 77. This is dependent on the next two days of movement as well. They will definitely be some good accumulation days.

Do your homework like I have done and you will see that this company is vital to the success of the Deep-Water Market in the GOM and abroad. Large contracts have been signed this quarter which should keep the management upbeat on its prospects for the next year and beyond.

Remember that I won't be going into this or any earnings call without some downside protection... and neither should you. If you buy this stock before earnings buy 2 puts for every 100 shares you buy (assuming you buy near the money or slightly in the money puts).

Happy Trading,

RE

The Good, the Bad and the Awesome...

The Good:

SLBs numbers were awesome and continue to validate my thesis on this companies' ability to make money. I have been saying all week SLB will report positive numbers and we definitely got them.
Also notice the channel I have had drawn for months. The Volume action to me spells a bottom and HAL and BHI as well as the other service companies could be a good catalyst for a rise to the top of this channel. I have a feeling Oil prices may be a little soft at the start of Monday so use any dip to pick up some SLB , BHI or HAL. I will be picking up some SLB.


The Bad:

The price action AND my strangle. I miscalculated yesterday my break even point by not effectively judging the volatility drop. This moved my expected break even point from 99-100 to about 102. Now if you watched the stock it did not spend much time above 102. I did trim some both times, but the strangle as a whole was not profitable. What was profitable was my core position of Stock. Once I saw that the stock was stuck in a tight trading range at the high 101s I started to liquidate.

The Awesome:

Now we have solid evidence that the Oil Services Sector will stay "Stronger for Longer" which gives me more confidence in the future direction of this company. Though I did not pick up more calls when the market professionals pinned this stock at 100 I will spend next week building a bigger position. Near term weakness in oil should provide some excellent entry points as it did this past week.

BHI Earnings Tuesday, July 22 Before the Bell
HAL Earnings Tuesday Afternoon
BJS Earnings Tuesday Before the Bell
SII July 24 Before the Bell

Happy Investing,

RE

Rollercoaster ride today for SLB and RIG

Thank goodness I covered on RIG this morning... unfortunately they got me to uncover a little to early.

SLB on the other hand was a different story. The run up provided a great opportunity to cash out some Calls that I bought yesterday when SLB blew through 94 and damn near went to 93. That healthy double from then to this morning paid for part of the position I have for earnings. Nice volume pre-earnings... 19+ million.

My core position is Stock that is my LONG term hold.

My Hedge that I talked about is:

July 95 Puts (Avg. 1.95)
July 90 Puts (Avg. 0.60) Twice as many of these as the 95 strike.

My Long Option Position is:

August 105 Calls (Avg. 2.47)
July 100 Calls (Avg. 1.61)
July 105 Calls (Avg. 0.45) Speculative

If we get some good guidance upgrades are sure to follow... so I will sell some of the August tomorrow and the rest next week. I don't usually like to hold front month contracts outside of a day trade play, but the volatility draw down that is inevitable really effects these longer term options.

Hope for the best... plan for the worst.

Good luck,

RE

WOW... SLB

A very interesting two days for SLB.

I never expected such a large drop over the last two days, but the large drop in oil provided some more great buying opportunities to pick up some cheap options. My timing has been spot on at the bottom of each day... which is kind of nice to do from time to time. These intra day drops and pops have provide some sweet trading opportunities that I would have turned into cash had it not been for FRIDAY!

Tomorrow should be an another interesting day.

Remember it is ok to speculate, but use the front month option contracts as a cheap hedge for any position of decent size.

RE

SLB and RIG... Basically OIH

July 9th SLB Close: 97.23 RIG Close: 144.32

Today SLB 101.79 RIG 147.56

Oil did hit an all time high as I expected. Once again the threat of war in Africa somewhere, Iran talking trash and the fall of the dollar as Fannie & Freddie TANK provided enough reason for oil to reverse hard. I love it.

The broader market has really dragged my picks down but have provided some reliable trades intra day. On down days these stocks were brought down only to rally back late in the day. On up days these stock rally hard in the morning only to reverse handily around 10-1030. Look at Rig intraday today. Sell some calls as it starts to reverse with the market and and ever more reliable trade has been to wait for a near intraday bottom and ride the reverse when oil is up.

By the way I took some profit today and Friday. A nice 75% return on my options bought three days before on SLB (August 100 Calls bought near the low on 7/8/08). Took some more profit today at the high of the day. SLB has not trended as well as RIG has so I don't sell against it to protect "paper profits," I instead choose to take the cash and run.

Don't get me wrong I believe we have more rally in us, but with RIG and SLB intraday price ranging between 4 or 5 dollars a little extra cash to pump into my core position when these stocks are brought down by S&P futures is priceless and good trading.

At the end of the day the trade that has been working is sell on the pop and buy on the drop.

Can't wait for my Birthday... July 19th the day SLB blows earnings away.

Happy Trading and Wealth building,


The Rich Engineer

Oil Market Update... Fundamental & Options trade of the year

So yesterday and today were very interesting days in the oil markets... more specifically in the Oil Services Sector. As you probably already know my two key holdings are RIG and SLB, both of whom were/are in a nice trading range. The horribly oversold sector as a whole is setting up for new 52 week highs. Why do I say this... Schlumberger.

Regardless of what oil does (which I believe is also in a trading range setting up for new highs) July 18, 2008 it all is laid out in the open, as for the long term outlook of North Amercia and the world at large for the Services Sector. Drawing on the words of the SLB CEO, Andrew Gould last quarters higher oil AND natural gas prices changed the business cycle in the oil industry. A cyclical downturn in the industry was stymied by higher than expected oil and natural gas prices. As we are all very aware these prices have gained strength in the second quarter being reported on July 18th.

This hard drop in SLB (and all of other stocks in the Oil Services Sector) has brought about a great buying opportunity to build a very nice pre-earnings position. I am currently accumulating slowly. SLB has not seen the levels it was at yesterday since before Q1 earnings. The truly sweet thing is SLB reports on options expiration day. This sets up some seriously profitable trading opportunities with insane returns. Also buy some hedging puts, not all of them expiring on Friday, June 18th. This will help if we get a surprise drop (unlikely but not impossible) as the drop will probably be multi day and could help you hedge the high volume drop against your core position.

Remember REs number one trading principle... protect your capital. SLB is setting up for an AWESOME trading opportunity on the long side, but have some downside protection so you can play another day.

The RE trade will look something like this:

July Calls (Near Money) SPECULATIVE
Core Position
August Puts (Near Money) HEDGE
July Puts (Near money same strike as the the August) HEDGE

By combining the August and Julys, you reduce your premium (that you will lose if we get our run up) but provide some very cheap insurance.

Now is the time to SLOWLY build your core position. Then on the 17th bring in your hedge and speculative trade. If we get the hard move up the speculative will easily pay for your hedge + some.




TheRichEngineer

Rich Engineer- Options Trader

This is the start of a change in the RE site. We are still going focus on creating wealth but now add some market in site as RichEngineer sees it for stock and options trading. Things you can look forward to are:

1. A few stock picks with Technical and Fundamental research provided.
2. A monthly tracker of REs options trading
3. A continuously updated Book list. It will have short synopsis or insite provided by the Rich Engineer and a general recommendation of which category the books fall under.
a. Must Read
b. Good Information
c. Read at Some point

The new site and blog will be up and running Summer 2008.

See you then!

The Rich Engineer