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Green & Gold Fund

Recommendation: Buy Call Options in XLE. Green & Gold Fund. Options. What are options? Right, not obligation, to buy or sell an asset at a certain price before a certain date Option premium 1 contract = 100 shares Delta Types of options Call – Right to buy Put – Right to sell.

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Green & Gold Fund

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  1. Recommendation: Buy Call Options in XLE Green & Gold Fund

  2. Options • What are options? • Right, not obligation, to buy or sell an asset at a certain price before a certain date • Option premium • 1 contract = 100 shares • Delta • Types of options • Call – Right to buy • Put – Right to sell

  3. What happens if you Sell a Call? • You own Stock A at $50 a share • Your sentiment: bearish • Sell 55 Call for $ 1 • Two results: • Price eclipses 55 (ex. 60) • You have to sell at 55 • So you make capital gain in stock plus the option premium • Price doesn’t pass 55 (ex. 45) • You don’t have to sell • So you make the option premium, hedging the loss

  4. What happens if you Sell a Put? • Stock A is at $50 a share • Your sentiment: bullish • Sell 55 Put for $ 1 • Two results: • Price eclipses 55 (ex. 60) • Nothing happens • You make the option premium • Price doesn’t pass 55 (ex. 45) • You have the obligation to buy at 55 • Even though it is trading at 45, you have to buy at 55

  5. What happens if you Buy a Call? • Stock A is at $50 a share • Your sentiment: bullish • Buy 55 Call for $ 1 • Two results: • Price eclipses 55 (ex. 60) • You have the option to buy the stock at 55 • Price doesn’t pass 55 (ex. 45) • You don’t have to do anything • You only lose the option premium

  6. What happens if you Buy a Put? • You own Stock A is at $50 a share • Your sentiment: bearish • Buy 45 Put for $ 1 • Two results: • Price eclipses 45 (ex. 60) • You don’t have to do anything • You only lose the option premium • Price doesn’t pass 45 (ex. 40) • You have the right to sell the stock at 45 • Protection from downside

  7. XLE – Energy SPDR • ETF with companies from oil, gas and consumable fuels, and energy equipment and services • Corresponds to the price and yield performance of its holdings • Ex. XOM, CVX, SLB, OXY, APC, HAL, BTU

  8. News affecting Oil Prices • Israel/Gaza conflict • Middle eastern conflicts affect oil prices • IEA reported that US can pass Saudi Arabia in oil production within 10 years • Previous report had Saudi holding until 2035 • Low gasoline and oil prices • Near 18 month lows • Recent Gulf oil rig fire

  9. News affecting Oil Prices • Hurricane Sandy and seasonal increase • Shut down oil refineries, decreased demand from businesses/consumers, crude/nat. gas prices down • Fiscal Cliff • Threat of second recession decreasing demand • Eurozone Recession • Eurozone 3Q GDP falls 0.1% (tightened 0.2% in 2Q) • Unemployment reaches record high of 11.6% • Growing economies increase energy demands

  10. US Crude Oil Field Production (yr)

  11. US Crude Oil/Natural Gas Rigs in Operation (yr)

  12. US Imports of Crude (yr)

  13. US Imports of Crude and Petroleum (4 wk)

  14. US Exports of Crude and Petroleum (4 wk)

  15. US Net Imports of Crude and Petroleum (4 wk)

  16. WTI Crude Oil and Gasoline Prices (18 mo)

  17. WTI Crude Oil Spot Price (2 yr)

  18. Brent Crude Oil Spot Price (2 yr)

  19. US Retail Gas Price (2 yr)

  20. Coal and Natural Gas • Coal has risen for the past 10 years, but EIA predicts a decrease in the near future • Natural gas has been fluctuating but overall trend is up

  21. Key Investment Points • Energy sector has been beaten down • Nearing lows of the past 18 months • Increasing conflict in Middle East • Trends of US Oil Production

  22. Investment Information • Today’s Close: 70.91 • 52 Week Range: 61.11 – 77.35 • Beta: 1.1 • Dividend/Yield: 0.33/1.71 • Average 3 mo Volume: 10.9 M

  23. XLE 5 Year

  24. XLE 6 Mo

  25. XLE Options

  26. SWOT Analysis

  27. Investment Thesis • Buy XLE 72 Call for 16 Mar 2013 • Energy has been beaten down the past few months • Lock in a moderate gain, with low risk

  28. Recommendation • Sector: Energy • Industry Group: Energy and utilities • Current Holdings: PXJ, FEN, VPU, AMLP, OXY, HAL • Target (Current) Allocation: 7.23% (8.96%) • Recommendation: • Buy 5 XLE 72 Call options for 16 March 2013 at $2.70 • Cost: $1350 (plus commission) • Sell calls after a 25-30% increase • XLE increase to 72.38 – 72.67 (with a .43 delta)

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