Trade Summary: February 29, 2016

| February 29, 2016

February 29, 2016

 

 Trade Rationale

With the market calming down, we can start focusing on themes other than safety and value.  We can turn our attention from directional strategies and delve into more specific, market independent themes.  This week, I want to look at the energy sector.

More specifically, I want to take a look at some trading ideas which are based on a future without oil.  Before we go any further, no I don’t think we’re finished with our reliance on oil.  Yes, I believe oil prices will rise again before we’re done relying on it.  However, I believe the future of transportation is going to have a lot less oil in it.

As such, we’re going to look at a lithium producer, a fuel cell company, and a diversified engine company.

The first company we’ll buy calls in is Albemarle (ALB).  ALB is one of three public companies essentially holding an oligopoly on lithium production.  ALB is the only one of the three with a US-based lithium mine (there’s only one operational in North America).  Lithium is the key component to electric vehicle batteries and could basically become the next gasoline.

For our fuel cell stock, we’re going buy calls in Plug Power (PLUG).  Normally I’d prefer to use a higher priced stock for option trading, but PLUG is exactly what we’re looking for in terms of a fuel cell company.  Their focus is on vehicles and they already have deals in place.  The company is in good shape for long-term growth.

Finally, we’re going to buy calls on Cummins (CMI).  The $17 billion company makes diesel and natural gas engines primarily.  Diesel engines are probably going to be around much longer than standard gasoline engines due to the power/towing aspect which can’t necessarily be replicated by alternative fuels right now.  Plus, natural gas engines are likely to end up getting a big piece of market share in the public transportation space.

 

Trade Details

#1) Buy Albemarle (ALB) April 15th 60 Calls up to $1.95

For this trade, we’re looking for ALB to climb.  Our first profit point for conservative traders is at $62.  For aggressive traders, you can hold up to $64.  For risk control, the conservative exit level is $52.50.  $50 is the final exit level for aggressive traders.

Albemarle

#2) Plug Power (PLUG) June 17th 2.50 Calls up to $0.30

With this trade, we’re also looking for a move higher.  Our first exit point for conservative traders is at $2.75.  For aggressive traders, you can hold to $3.50.  For risk control, the conservative exit level is $1.50.  And, $1 is the final exit level for aggressive traders.

Plug Power

#3) Buy Cummins (CMI) June 17th 110 Calls up to $1.90

Finally, we’re looking for an up move in CMI.  Our first profit-taking exit point for conservative traders is at $105.  (Yes, it’s not even at-the-money at that point but if it happens in the next couple months, it will still be a big winner.)  For aggressive traders, you can hold to $110.  For risk control, the conservative exit level is $90.  $85 is the final exit point for aggressive traders.

Cummins

 

Category: AOA Trade Summary

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