Didn't buy today.

Stock and oil meandered today. I think if the Iran deal gets delayed one more time my head might explode. Looks like Monday is the newest deadline.

So, fair question about options, trust me I was close to going that route.

As I'm sure you are aware with options you have to predict direction AND timing. With stocks you just need direction assuming you have the patience to wait things out.

ORIG is an oil play, simple as that.

If oil bounces I think I will make good money, if not I could lose everything.

So for options I would need to be able to predict when oil will surge, and I don't know the answer to that question. If I did I would be all over the calls for that respective expiration date. My bet is that it will likely return by 2017. So why not the jan. '17 calls? The premium is not worth it at the moment. I may augment my investment moving forward with options especially if I feel confident US production will drop later this year.

One of the posters on this thread bought the Sept. $6 calls. Bless his heart I would never make that bet b/c I have no idea if oil rebounds by 9/15. At least purchasing stocks leaves me an out...time.

Now when you say "return by 2017," what do you consider the return to be? $100/bbl?

I'd think you'll know if you're right or not well before Jan '17, and the return on $1 invested in a call option would be significantly higher than $1 invested in common equity.

Some sort of option strategy is how I'd play it. even buying some protective puts would be smart so you don't lose everything should it crater.

$100/barrel would certainly be nice. I'd label a return though at anything $75+. Most of the off shore drilling would be profitable at that level.

ORIG doesn't need much. It jumped 50% from March to May on a $10 run up in oil.

This stock would easily hike up to $12+ at $75/barrel.

Is there a 17/18 option market? I'd run a call spread based on your thoughts between 8 and 15. You'll pay for theta, but then you are only suffering bleed daily and if you are right, I'd expect you to be able to get out easily since liquidity would inevitably increase in the option market should your play work out. That removes your timing concern and we all know the stock will be a turd for you if oil stays at its current levels and you'll be out by 17 anyway.

Not trying to pick at your play because again you've laid some compelling DD out, but what you are doing is really really dumb trading in my opinion.

Listen, I'm in complete agreement I will make bank in call options if the stock soars. But I will lose everything if it languishes.

And ORIG will have very weak liquidity in the options market in this scenario.

Good luck unloading my $100,000 in options in that envt.


This thread has taken an interesting turn. In the beginning the general consensus was my trading was too risky. Now we have a good number saying I should go full steam ahead with options. I wasn't expecting the latter.

Why do $100,000 in options? If you're right you'll end up with a great return at a much lower investment amount. The reason to do this in options is the underlying risk. The best way to maximize your potential return per dollar invested is in options.

You could buy 50 $5 strike Jan17 options for a bit over $5k. You would lose no more than $5k.

5000 shares is going to cost you in the neighborhood of $25k. And there is a real risk you lose it all. Or close to it.

If it were EOG or COP or something, then I wouldn't be as concerned.

Your money, but if I were willing to make a speculative bet like this, I'd go the options route.

jh,

I wouldn't.

I may do 80k/20k stock/options. There is no way I'm going all in on options though.

Chupa,

I like that bet. Risking 5-20% of my stack on options is a little more palatable bet.

Sell puts...

How long until you think the "picture" becomes clearer? If you are trading options, why not buy a strangle? You have said you think it is going way up or to 0. A strangle lets you in the positions for less than a straddle, but provides a profit with any directional volatility. Unlimited upside, limited downside, profit with movement towards either bull or bear spread.

Because strangles are pricey... if you have a clear directional view, a strangle is definitely not the play here. The Put skew is more expensive than the call right now and if I'm playing the value to the upside, owning an OTM put makes no sense in my opinion unless you are creating a synthetic call with the underlying equity.

Fat Cap,

You are clearly viewing this too too binary and that's why ultimately you are trading and playing this very poorly and too expensive. Nobody is suggesting you go balls out and commit $100k in options... I'm merely suggesting that you can make a more optimal play on a crude oil move up while diversifying your downside by thinking critically about your capital vs. just thinking 'I'm all in' w/ ORIG (see point 2 here as an example). Couple of facts I get now that I'm able to look at the option chain that you just need to be mindful of:

1. The implied volatility skew and open interest in January 2017 is heavily weighted to the Put side... granted liquidity is low... but it puts are more expensive that calls. Just something to think about.

2. Going to take one more swing at this. Looking at the option chain, looks like a lot of people want to set up a call spread but there are no mullets to buy a $10+ call on this equity right now. Let's pretend you decide to cap your equity buy at $10k. Your extreme upside scenario is $20 to make math easy, I'm rounding your equity purchase to price to $5. That leaves your upside profit at $15 or $30,000.

Now, look at the option chain for the 2017 call. $5 call in Jan17 costs a $1 right now. Profiting $30k on that position at a move to $20 would mean you'd need to buy about 22 contracts

(20-5)-(premium at $1)*22 ctn * 100 = $30,800

That position costs you $2,200 right now. So... you have another $7,800 to do what you want to make your oil play (read: crude oil ETF or another equity play)... that's the way to coil up on a crude oil move and also diversifies you a bits.

Question you then need to ask yourself, IF crude oil remains range bound, is there a good chance your original $10k equity investment in this scenario could dip under being worth $7,800 anytime between now and 2017... if the answer is 'yes'... then play the options, not the equity.

My $0.02... not a financial advisor. Just a guy who trades equity options a lot. You are a young guy, but your clear hubris and blinders in the play have the potential of really kicking you in the balls. You don't need to do exactly this, but it's pretty clear if you just give your capital commitment a tad more thought, you'll see that you aren't trading optimally here. I'm always of the belief that there are no issues making a risky play if you can afford it... but if you do it, make sure you trade smart to get into the position with the best value possible... you are REALLY far from doing that with your play in my opinion.

Good analysis. I was offering the strangle because of the volatility of the equity. He is confident in the direction, but the strangle gives him a profit both ways.

quote:

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So, fair question about options, trust me I was close to going that route.

As I'm sure you are aware with options you have to predict direction AND timing. With stocks you just need direction assuming you have the patience to wait things out.

ORIG is an oil play, simple as that.

If oil bounces I think I will make good money, if not I could lose everything.

So for options I would need to be able to predict when oil will surge, and I don't know the answer to that question. If I did I would be all over the calls for that respective expiration date. My bet is that it will likely return by 2017. So why not the jan. '17 calls? The premium is not worth it at the moment. I may augment my investment moving forward with options especially if I feel confident US production will drop later this year.

One of the posters on this thread bought the Sept. $6 calls. Bless his heart I would never make that bet b/c I have no idea if oil rebounds by 9/15. At least purchasing stocks leaves me an out...time.

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No need to be a condescending jackass about my options play. I was the first person to suggest that strategy and now see several others jumping on that train. This is nothing more than a $600 gamble for me so I didn't feel the need to get too exotic with spreads or strangles. I just wanted to maximize the potential of $600. The reality is that oil doesn't have to rebound as much as you suggest for me to win here. You should know that all that has to happen is the appearance of this stock turning up and I'll make money. If I don't, then I don't, but I was willing to gamble $600 on that instead of pouring a few thousand into the underlying. Your arrogant "bless his heart" comment reveals a lot and is the reason some of these threads turn into the same crap you see on the General Board.

Whoa... this is taking an interesting turn.

Yeah....

BT,

apologies for my condescension

Alright you guys convinced me. I'm going to look into $5k of the $5 Jan. '16 calls and $5k of the $5 Jan. '17 calls.

Sound good?

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BT,

apologies for my condescension

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All good - apologies for the over reaction.

quote:

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Alright you guys convinced me. I'm going to look into $5k of the $5 Jan. '16 calls and $5k of the $5 Jan. '17 calls.

Sound good?

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I, nor anyone else is saying 'take everything you want to put into your play and buy options instead of the underlying and I'm still not sure you understand what or why anyone here is suggesting modifying your play. That said, unsure if you are joking or not but I'm out on this thread. Don't want to feel responsible if you truly get kicked in the nuts on this one.

Where did you gather that the $5k + $5k was "everything" I wanted to put into play?

Again I've got about $100k to play with by Dec. '15.

So the option play would only be 10%.

quote:

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Where did you gather that the $5k + $5k was "everything" I wanted to put into play?

Again I've got about $100k to play with by Dec. '15.

So the option play would only be 10%.

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Yes... But you still don't get why people are saying to use options vs using an underlying instrument for something like this. It isn't to lever up your returns and add risk. Do what you need to do, but you clearly have no idea how to set up a run up on crude oil from a Value trading standpoint. It really feels like you are doubling down when you've got 9 or 12 because you can. It might work out, but it still isn't very tactical or the best play. Kudos on your research but if your goal is to play a run up on crude, you need to take a step back and consider a broader way to play it is all where anyone is coming from here.

I think we have a fundamental disagreement on options in general.

No need get upset about it though.

I think what the options crowd is getting at is that you can generate a similar absolute dollar return by investing $100k in equity or $20k in call options. If you buy equity, it's within the realm of possibility that your investment could be worth $80k or less at some point in the future. If you play with call options, your loss is capped at a lower amount, but you maintain your upside in absolute dollar terms.

Got it, thanks.

quote:

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I think we have a fundamental disagreement on options in general.

No need get upset about it though.

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Believe me I'm not upset. Trying to help you out. Commend your research, but as someone who's done these sort of plays for a long time and has learned a lot, a pet peeve of mine is when no thought is put into how you commit your capital in something like this. Make sure it is a value proposition along with a speculative play, not just a gamble... That's all I'm saying. Put as much thought and research in how to do what you are trying to do as you do your actual position and you'll be ok. It's clear you've not put much thought into capital commitment though.

ATM,

As I said earlier I'm going to purchase calls likely next week.

What more do you want?

I'm taking your advice!

He is saying don't put your trade on his back.

Looks like an Iran deal is going to get done. You thinking this could lower your entry point pretty significantly?

Absolutely. I'll believe tomorrow when I see it. They have already pushed this thing back three times. Sounds legit this time though. Hopefully oil is down big and ORIG is suffering tomorrow. Might put as much as 20k in play if that is the case.

I thought this article on Saudi Arabia was fairly interesting: http://www.ft.com/cms/s/0/2fd630a8-2899-11e5-8db8-c033edba8a6e.html#axzz3fi2MHpy5

Might put some pressure on them to reverse course at some point.

Additionally I think we might see evidence very soon that US oil production has peaked at 9.7 million bpd and I think we see lower output reflected shortly.

Finally a done deal...I think

http://www.cnbc.com/2015/07/14/iran-nuclear-deal-likely-monday-into-tuesday-sources.html

I really need to get more into ORIG before wednesday's oil inventory report. I have a feeling we are going to see big changes in US oil production very soon.