SLB: Reader's Choice (Incl Video)
Schlumberger (SLB) provides a range of products and services from exploration through production and has a lot of room to rally right here. In 2Q11, the stock broke into the $90s, and as recently as February the stock was over $80. The downside is maybe $70. This is not a bad place to be for a stock in what appears to be shaping up to be a bull market.
The oil and natural gas boom has to be a good thing for SLB in the near-term, and I wouldn't be shocked if the current administration, that has been so anti-oil and nat gas exploration lets a few permits through over the next months, something that would help SLB's forward looking earnings. Any type of potential new drilling in the U.S. would be a very strong catalyst for a company like SLB.
Before we get into the options trade, let's review the fundamentals and charts with Jill and Scott in the T3/OP video:
The implied volatility (cost of insurance) on SLB options is low but not at a 52-week low or anywhere near rock bottom. This sets up a nice opportunity to stick our toe in the water buying calls but lends itself more to a call spread. I think SLB could make a nice run a to $80, so lets buy the June 75-80 call spread.
Trades: Buy to open SLB June 75 calls for $2.55 and sell to open SLB June 80 calls at $0.78.
Our target on the trade is to sell the spread at $3.00. If the spread drops below $0.85 we kill the trade.
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