This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

VLO: Refined Calendar Spread

Options Industry Council FREE Three-Part Webinar Series: Part Three Wednesday, April 18 at 7pm ET. CLICK HERE FOR INVITE AND TO REGISTER.

Valero Energy (VLO) is in the oil and gas refining and marketing business. That means VLO makes gasoline from crude oil and then they sell it at their gas stations. Somebody is making a lot more money now that gasoline is above $4 per gallon. However, VLO analysts think the company is doing only fair for now, with better earnings on the way over the remainder of fiscal 2012.

Meanwhile, back to the game of, "What have you done for me lately?" VLO continues to drop from its 2012 high made in early March around $28.50 to where it closed yesterday around $23.35. That is a serious decline for only six weeks. The catalyst for the selling was the news that VLO is closing down a refinery (in Aruba) because it was not a profitable operation. The company announces Q1 earnings results on May 1, and I am sure it will comment fully on this management decision.

The expected earnings for Q1 are $0.20 per share, a small increase on a year-over-year comparison with 2011. For Q2 the average earnings guesstimate (of 14 VLO analysts reporting to Yahoo! Finance) is $1.56 per share compared to $1.30/share which would be a 20% increase year-over-year. For fiscal year 2012 the average earnings guesstimate is for VLO to have earned $3.67 per share compared with $3.38 per share in fiscal year 2011 which ends in December. VLO is now trading with a trailing P/E of 6X and a forward P/E of 5X, which is seriously and cheaply low for any stock! The dividend yields 2.50%, a $.60 per share payout annually. That has plenty of room for improvement as VLO grows its earnings and serves as a downside governor for its stock price.

If you believe the analysts in VLO's business sector you begin to scratch your head as to when the best time and price is for this company relative to the price of crude oil. VLO has a 52-week price range of $16 to $29. That fact is not missed by options traders who are currently using mid-40s volatility for VLO options. VLO has decent options liquidity and tight enough markets as per the spread between the bid and ask.

Before we get into the options strategy, let's take a look at the T3/OP video with Jill and Marc as they further review fundamentals and the chart.



The trade tactic I prefer for VLO now is the calendar spread. This type of spread is 100% risk controlled. It is medium as per its risk level and open-ended, for now, as per its reward potential.

Trades: Sell to open 3 VLO May 24 calls at $0.90 and buy to open 3 VLO June 24 calls for $1.30.

The total risk for the trade is the premium paid for the spread, or $0.40 per spread. As always, I will monitor the trade on this site in the comments section below.

OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits

T3Live can be followed on Twitter at
twitter.com/_t3Live_

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
VLO $59.15 0.00%
AAPL $132.04 0.00%
FB $80.55 0.00%
GOOG $539.79 0.00%
TSLA $247.43 0.00%

Markets

DOW 18,162.99 +121.45 0.67%
S&P 500 2,123.48 +19.28 0.92%
NASDAQ 5,106.5930 +73.8420 1.47%

Partners Compare Online Brokers

Free Reports