Sell more PTR puts to buy China's best oil company at a discount

February 18, 2009

The Geiger Index
Wednesday, February 18, 2009
By Keith Fitz-Gerald

Email – #16

**Sell more PTR puts to buy China’s best oil company at a discount – and get paid to go shopping …even if the Geiger’s dead wrong

**Make sure your stops are in place on TBT and DRR to lock in gains

**Abandon AMRI

Most people won’t go to a “36% more sale,” yet that’s exactly what they’re doing if they’re buying PetroChina (NYSE: PTR) at these levels. I’ve never liked paying too much for anything, so we’re not going to play that game.

Instead, we’re going to take advantage of malicious market conditions with a trade that Geiger indicates has an 88.81% probability of success, and which potentially adds more of China’s best oil company to our coffers at bargain basement prices.

Here’s how: Sell 1 March 09 $55 put (PWKOK) for every 100 shares of PTR you want to own and accept no less than $0.50 for it.

On March 21st, 2009 when these options expire, one of two things will happen. Either the price of PTR will be below $55 dollars, in which case we’ll step in and buy at a steep discount to where the stock is trading today. Or the price will be above $55 dollars per share, in which case we’ll “rinse and repeat” the whole process. Either way, we get to keep the cash we generate by selling our options “just for shopping.”

Now let’s take a quick look at our other positions.

The Geiger is clearly working as intended and I’m very pleased about that especially since 2 of our 3 positions are trouncing the S&P 500 over the timeframe we’ve had them. The third is breakeven so far.

UltraShort 20+ Treasury ProShares (NYSE:TBT): We’re up 8.4% so far, which isbeating the S&P 500 by 20.49% since we opened the trade. The world is still scared and the safety play of bonds remains alluring, so TBT’s given up a little ground in recent trading. Keep a protective stop of $44.35 in place to lock in profits if the markets force our hand. Longer term this trade will move far higher, so it’s the extreme short-term machinations we’ve got to watch out for.

Market Vectors Double Short Euro (NYSE:DRR): The story is much the same here. With the Eurozone in real trouble, DRR is up 8.47% since entry, and it’s beating the S&P 500 by 14.23% over the same time frame. The Geiger continues to show a markedly weaker Euro ahead but let’s not get careless. Move a protective stop up to $52.93.

PetroChina (NYSE:PTR): Last week we sold our first round of PTR puts; hold these or add to them. Or use today’s trade to get started from scratch. Oil remains more critical than ever to China’s recovery – and indeed to the rest of the world’s eventual bailout. As I’m writing this, PTR has fallen nearly 8% on the day and that’s to be expected as long as demand numbers continue to mislead people into believing oil has had its day… which is precisely why I want to capitalize on continued volatility with this stock and make hay while the sun shines.

Albany Molecular Research, Inc. (Nasdaq:AMRI): We were looking to short AMRI above $13.61 and the markets never allowed us to enter. I don’t think the trade is worth pursuing now so let’s abandon the trade and cancel all outstanding AMRI orders. There are plenty of other fish to fry.

Speaking of which, the Geiger suggests still more volatility on the horizon so let’s remain nimble and focused. We’re probably going to have a shorter term time frame on at least a few of our trades before we can settle into more of the 6-8 month targets I’m eyeballing now.

This may seem unsettling but, in reality, this kind of volatility is expected as part of the bottoming process. The key, as always, is adapting our trading tactics to what the markets want to hand us rather than trying to force the markets to do something against their will – which is what most people are doing right now (and why they’re getting clobbered).

Thank goodness we’re not in that crowd!

All the best regards,

Keith

Recent

Buy

Stock

price

Under

Remarks

UltraShort Lehman 20+ Treasurys (TBT)

$48.62

under 45

Hold- Flight to safety may put too much pressure on TBT in the near-term for us to stay in the trade. Keep your protective stop at $44.35.

Market Vectors Double Short Euro ETN (DRR)

$52.72

Hold

Hold- Big problems in the Eurozone bode well for DRR, but don’t chase it. Sit tight if you aren’t in the already – there will be more trading opportunities to come. Move protective stop up to $52.93

PTR March 09 $55 put (PWKOK)

$0.60

Sell short at

NEW: Sell Short-one contract of (.pwkok) for every 100 shares of PTR you want to own. With a 88.81% probability of PTR never trading as low as $55 we will probably get get to keep the cash we generate by selling our options.

$0.50 or better

Albany Molecular Research (AMRI)

n/a

Close Trade

Cancel all your oustanding AMRI orders. This trade never gave us a chance to enter at the price we wanted.

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