Quick Thoughts On Energy, Options Expiration And Market Action

So this week, I wrote the most popular article on Seeking Alpha: 

An Iran War Is Coming – Buy Oil Stocks Now

I got crushed in the comments section by some people. I was called “delusional, warmonger, stupid, narrow minded, uninformed, asinine, short sighted” – it was quite the barrage. When I write something with that response, it generally means I’m right. The same thing happened when I said the dollar would rally for years back in 2012 when others called for collapse.

I also got accused as a click baiter by on contributor who is what my brother and I (we used to work at a big family owned RIA together before he moved and I started my own firm) call a “bull market analyst.” What is a bull market analyst? It’s somebody who gets a good intermediate term track record on the luck of having starting investing (or writing in this case) at about the time a bull market started.

Frankly, I didn’t think the article would be that popular given two previous articles got barely 5,000 views. As of right now, above 50,000 people have read the article. Also, for the record, what SA pays me is my 4th source of income, in rank order behind managing money, membership subscriptions to this and another service, insurance residuals/occasional sales, and then SA articles. 

Anyway, a few folks who liked buying oil stocks, just didn’t like the thesis as a basis for investing in the oil stocks. But, as you know by now, I am investing in oil stocks for two reasons: 

First, oil demand and supply are already in balance, while inventories start to come down. Because investment in offshore is still low, and shale production is also leveling off, the oil markets will continue to tighten into next year and the IPO of Saudi Aramco.

Second, I do believe the risk of a greater war in the Middle East is getting to be extremely high. The Saudi vs Iran conflict is growing as Iran’s proxies cover the Arabian Peninsula now and into Yemen on Saudi Arabia’s border. It makes no sense for Saudi Arabia to not push back and they have several willing allies including Israel, Egypt, the GCC nations and the U.S.

So, under those two scenarios, either oil gradually rises in price, or it suddenly rises in price. For oil stock investors it’s either win or win more. That’s a great equation. 

Some like the idea of investing in Exxon (XOM) and Chevron (CVX). I don’t. I do like how consistently folks say “I’ve been investing in Exxon for 47 (pick some big number) years. And now that it’s pulled back, I’m going to buy some more.” Put a funny old man voice on that stuff for effect. The simple reason to avoid or swap out of Exxon and Chevron is that there is better companies at this point. The long answer includes both companies have assets likely to be stranded (check out their write-offs the past couple years), their producing assets are stretched and their legal problems are mounting. 

I like Occidental (OXY) and Helmerich & Payne (HP) for dividends with some growth. I like Encana (ECA) for growth and possible full or partial buyout. There’s a few more, but stick with those for now in oil. Over in natural gas, throw in Antero (AR) and Kinder Morgan (KMI). That five stock basket is diversified, pays income and has growth. It’s better than an ETF.

Options Expiration

I am getting some stock assigned to me. I had sold $9 puts on SunPower (SPWR) and will have a net cost of $8 (currently trading at $8.55). I also sold puts on CenturyLink (CTL) $20 that’ll have a net cost on of $19 per share while the stock currently trades at $18.86. I’m cool with both of these assignments. I’m always cool with getting assigned since I only sell puts on stocks I want to accumulate. THAT is the way to think of put selling. The prize is owning the stock, the consolation prize is the income, not the other way around. 

Here are my consolation prizes: I sold $10 puts on Encana (ECA), Control4 (CTRL) $25, Potash (POT) $17 and Helmerich & Payne (HP) $45 all expired leaving me with the income. I do own shares in all four stocks though. 

On Sunday, I will put together a list of stocks to sell puts on to have a chance to buy on small corrections or take income on. 

Market Action

The market is still boring. That means it’s probably still going to go up a while. I have seen a lot of folks calling for a 5% to 10% correction and frankly agree. That tells me that we ought to be buying any correction that’s not some 1% or 3% thing. 

With literally $30 trillion of money on the sidelines globally due to central bank actions and about half of that still looking for a home, corrections are still likely to be short and shallow. even though we are “due” for our first real correction in two years.

We want to be focusing on two things when we get our opportunities. Overweighting energy and technology. I am headed towards about 25% in both sectors. I expect to be fully invested again soon, although a lot of it will be selling cash-secured puts.

If you are not familiar with cash-secured puts, get familiar. It’s an easy trade, is lower risk than buying stocks outright and creates cash flow into an account. Here’s where to start:

Cash Secured Puts

If you haven’t sent a few bucks to the hurricane ravaged areas, please do what you can:

Hurricane Relief | Tropical Storm Relief | Red Cross

Kirk out

Disclosure: I am/we are long ECA, OXY, POT, CTRL, AR, KMI, CTL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own a Registered Investment Advisor, however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.


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