Hey There Income Hunters,
Am I the only one tired of hearing about net zero, green energy or ESG?
Let’s be honest, do any of the officials joining in on the chorus of climate change really care?
Now we have the Fed and the Treasury talking about looking at the possible damage to banks.
This is just another conjured up hoax — another sleight-of-hand trick that the Fed is so good at. You know, don’t look at the fact that we can’t pay back our debt, look at how much more money we can print to build beautiful bridges to nowhere.
So far all I am seeing is cost estimates like the US spending $5 trillion a year for 10 years on this boondoggle.
Here is the truth: this energy crisis was always about the ESG backlash due to the freeze it put on capital investment into “real energy” oil, gas and coal production. The real number is near $2.4 trillion that was eliminated from 2014-2021 capital expenditures necessary to keep up with demand.
In the meantime, thanks to global population growth of 700 million over that period we are much further away from net zero-carbon emissions than we are being told. Realistically, we may reach net zero by … 2070.
While I may be steamed about the incompetence of it all, it has created a bonanza of profitable trades:
Today I’ll give you an oil company that will see demand rise over the winter months — and you will see peak profits as they play catch-up to a fair price that is 35% higher from where it sits now.
The Kind of Divergence Oil Longs Want to See
As you can see from the chart below, oil inventory is dropping just as TSA travel traffic numbers are rising. There is a chance the reopening trade is more robust than expected and ignited new demand for oil that is not priced in …
The chart above is showing US stockpiles ex-strategic reserves. The situation has completely changed from 2020. We may end up seeing inventories dip further just as travel picks up …
Consider Transocean LTD. (Ticker: RIG)
RIG is an offshore oil driller whose revenue and stock price rely heavily on the price of oil. However, it suffered some backlog issues that are now beginning to clear out and with the crude price above $80 they stand to see some nice investments arrive.
RIG can do some nice catching up to the price of oil after lagging year-to-date, as you can see from the chart below …
The Technical Setup
I like the upsloping 50- and 200-day moving average and the uptrend channel that the stock is trading in.
We could see a pullback to the $3.75 level which would give you a good risk/reward trade with a stop-loss on a close below the 50 DMA at $3.55 …
Low Risk/High Reward Option Strategy
I am going to buy a RIG Nov. 19 4/4.5 call spread at $.17. That gives me one month for the stock to rally $.70 cents, which is what the straddle forecasts. If RIG can close above $4.50 at expiry, I’ll gain a maximum profit of 120%. Not a bad one-month trade.
The stock price currently trades at a 37% discount to its fair value price of $6.41, so the probabilities are certainly on your side here.
Here is the risk profile …
These are great risk/reward trades, and you don’t have to risk all your capital … get in around $3.75 and out on a stop below $3.55. That’s less than a 10% loss of capital, but if you are right you make 120% …
Bring It Home
The market may be building for a nice Christmas rally — we just need a little lift from the reopening trade.
I also bought the United States Natural Gas ETF (Ticker: UNG). This has been a market to sell your longs in the energy space when they go up and move into other areas when they go down.
Yesterday I lightened up a couple of gold stocks in the morning and went into UNG down 7% in the afternoon.
I think we will continue to see rotations into energy stocks and real assets as investors get nervous that the Fed will be starting a prolonged period of raising rates, which in the past has triggered a meaningful correction in stocks.
Have a great day today and as always …
Live and Trade With Passion My Friends,
Griff