Thread: Time to go long on BP??

I have been selling put options on BP with strike prices ranging from $20-$35/share.

I'm not too knowledgeable when it comes to oil stocks, but I would think putting some skin on the OTHER oil companies (e.g., Shell) that have dropped a lot may be something to consider. That is, unless people are skiddish about some pending/future legislation that will curtail their bottom line.

I would wait till all the crap clears and if BP is still in business go4it.

I have been thinking about that very same thing for the last 2 weeks.

Be aware that I'm not a stock expert by any stretch, and I tend to invest long-term and based on trends, not short-term technical moves.

Here is my reasoning:

BP is now at half of what it was in January - when it was at the same level as Shell. And it was only catching up to Shell at that point, digesting a lot of acquisitions that happened in the previous decades. It had upward potential and still does in terms of operations.

Oil companies make way more profit when the price of oil goes up. IMO and in the opinion of most economists oil is bound to go back to 100+ and more due to Peak Oil in the next couple of years.

People are scared because they hear about tens of billions in clean up costs, but this is a company that has 25+ billions profits a year. It can pay this off.

I'm not buying now though, for 2 reasons:

1. the oil hasn't reached the beach (not in a big way, that is), and when it does, the media frenzy will go overboard and the stock will go further down.

2. another possibility is that they will have to cancel their dividends for this year due to political pressure, which would also send the stock down. If that happens I believe it will be announced this month (when the oil reaches the beaches and the indignation is at its peak). That would be the right moment to buy, near the bottom.

It seems to me that BP is bound to go back to 60 at some point. Maybe not 2011, but then 2012, or 2013 (my gut feeling is end of 2011, early 2012). It could in fact get over 60 if you hold long-term. Doubling up your money or more in 12 to 36 months isn't a bad deal.

Thoughts?

Originally Posted by NoMoneyDown

I'm not too knowledgeable when it comes to oil stocks, but I would think putting some skin on the OTHER oil companies (e.g., Shell) that have dropped a lot may be something to consider. That is, unless people are skiddish about some pending/future legislation that will curtail their bottom line.

Not a bad suggestion but in my view the oil spill has not really affected Shell, Exxon, Total and others to the same extent as BP. They have all fallen only 10-20% and I think the Greek crisis last month had more to do with this fall then fears for the oil industry due to the leak,

Originally Posted by ITA

I have been thinking about that very same thing for the last 2 weeks.

Be aware that I'm not a stock expert by any stretch, and I tend to invest long-term and based on trends, not short-term technical moves.

Here is my reasoning:

BP is now at half of what it was in January - when it was at the same level as Shell. And it was only catching up to Shell at that point, digesting a lot of acquisitions that happened in the previous decades. It had upward potential and still does in terms of operations.

Oil companies make way more profit when the price of oil goes up. IMO and in the opinion of most economists oil is bound to go back to 100+ and more due to Peak Oil in the next couple of years.

People are scared because they hear about tens of billions in clean up costs, but this is a company that has 25+ billions profits a year. It can pay this off.

I'm not buying now though, for 2 reasons:

1. the oil hasn't reached the beach (not in a big way, that is), and when it does, the media frenzy will go overboard and the stock will go further down.

2. another possibility is that they will have to cancel their dividends for this year due to political pressure, which would also send the stock down. If that happens I believe it will be announced this month (when the oil reaches the beaches and the indignation is at its peak). That would be the right moment to buy, near the bottom.

It seems to me that BP is bound to go back to 60 at some point. Maybe not 2011, but then 2012, or 2013 (my gut feeling is end of 2011, early 2012). It could in fact get over 60 if you hold long-term. Doubling up your money or more in 12 to 36 months isn't a bad deal.

Thoughts?

I am in a similar situation to you in that I don't have the time or inclination to learn and deal with options and regular trading but prefer to put my money into long term value stocks.

Thanks for your input I agree with what you said about holding off for a little longer I will keep an eye out for news of the oil hitting the shores of Miami and other states because like you said this will open up the floodgates on another huge number of compensation claim and fear driven selling.

It's been a while since I've toyed with options, but would an options straddle be advisable for BP or is the implied volatility too high?

Originally Posted by moop

It's been a while since I've toyed with options, but would an options straddle be advisable for BP or is the implied volatility too high?

I wouldn't do a straddle just because I think there is big upside potential here. It seems most of the bad news is baked into the stock price and in reality, the company can easily afford the clean up cost with just over one year's pretax profits. A straddle will limit your upside. I am selling puts in the $20-35 range for income. Because of the volatility, the option premiums are very high right now.