Daily Stock Market Equity and Options Trading Commentary

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Friday, December 5, 2008


With oil taking a serious nose dive, I have started to find value in that sector. Of course Merrill Lynch came out and said oil may hit $25 a barrel if China slows down, but I honestly think even if pure speculation drives it that low, we will see a bounce back quite quickly. I must say the best way to play this would be an ETF or Exchange Traded Fund. You can find all sorts of these that capture the entire sector if you do a little research. It will help protect you from anyone of these companies going under or getting diluted, but of course you won't get the 500% overnight gainer either. I like DIG this is the Proshares Ultra Oil & Gas, which means it goes up roughly 2% for every 1% the holdings in that ETF portfolio rise. This holds your major oil and gas players such as Exxon, Chevron etc... I picked up 300 shares today for around $22 a share, and I already wrote $35 strike calls on them for December and received a premium of 35¢ per share. That's right I sold the rights to these shares at $35 for 35¢! These shares ended at $25.50 so with $9.50 to go in 16 days I am confident I might have received some FREE $. This gives me a cost basis of $21.68 per share after commissions. So If I do get called out I won't cry about it, I'll simply look for the next bargain, and sell some calls on it. Assuming I don't get called out, I will write the 3 contracts again for January hoping for another $1 per share for $35 strike again, assuming this ETF goes higher by then. I am holding DIG until I get called out, I am not afraid of an unrealized loss because I can simply keep selling out of the money calls for a nice premium and eventually I will be up all around on these shares. There are so many great stocks, and ETFs that are just fetching great premiums in this volatile market, that if you know how to play you will be certainly be cashing in on these terrible times.

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