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Dykstra: High Oil Offers Up Solid Options Play

Hercules options should prove to be a hit.


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blew out earnings Thursday and should help boost the market. Technology stocks have provided solid earnings this past quarter, with the likes of Microsoft and


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becoming growth stories once again.

Although tech has flexed its strength, I would like to once again focus on the oil sector, this time with

Hercules Offshore



I last

wrote about the company on March 21. Hercules offers drilling and lift-boat services to oil and natural gas exploration companies, and with oil booming, these stocks look well poised to rebound from their early summer decline.

Yesterday I wrote about


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an excellent value in oil stocks. Hercules provides an equally attractive play.

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The stock is trading just about at long-term support levels that will provide solid support for a company trading with a PEG ratio of 0.24. When I look for cheap PEG, I expect to find a company at 1 or less. With Hercules, we have a rare opportunity; both the technical and fundamental metrics for this company indicate a rebound is in order.

The company's shares closed Thursday at $24.87, well off the 52-week high of $36.97. With the price of oil soaring, Hercules' stock should reclaim some lost ground. I will place a limit order to buy 10 April 17.50 calls (HIQDW) for $7.90 or better.

Now, as I do every Friday, it's time to take a look at your emails. Once again, thank you for all of your support.

Lenny,I really enjoy your column andinvesting system. One question Ihave relates to the second and thirdbuy prices you set for the calls. Whatmetrics or rules do you use to selectthese prices -- technical, fundamental orsome combination of the two?

When setting the next buy level for a stock, I look at technical information. I take into consideration the current trading value of the stock, as well as the current average value of my DITM calls, how many positions I own and how long before expiration.

Also weighing in will be the 52-week low, and most importantly the support levels. I don't have a magic formula where I plug in a few numbers and out pops the new level, as many variables are considered and weighed, and they change with each trade.

Lenny, I have been investing in stocks for several years,following a buy-hold strategy. It has served mewell, but I am looking to generate continuousincome for the portfolio using options.Could you provide some insight into the "selltriggers" you are using with your DITM strategy? I am looking for insight on when to sellthe options. Any advice you provide is appreciated.

With my DITM calls strategy, my sell trigger is very easy. Initially I will set my "good-till-canceled" order to automatically sell my open positions when it reaches $1 higher than the purchase price, locking in consistent $1,000 wins. My strategy is not about home runs; it is about base hits. In baseball, consistent hits will help you outscore the competition more often than trying to aim for the fences every time.

However, the longer a position remains open, the more the trade will cost you in potential profits. Therefore, when a trade remains open for a while, I will adjust my GTC sell order down to exit the trade quicker and move my cash into a position that has the potential for a quicker turnover. With investing of any type, it's not just how much you make on each trade that is important, but how long it takes to earn the profits.

Hi Lenny,I am wonderinghow long you are going to continuewriting your blog here on the Street?Also, is there a link or Web site foryour trading company? I am interestedin learning more and possibly investingwith your company.Thanks and best wishes for continuedsuccess to you.

Currently my recommendations are available exclusively on

, but I am entertaining the prospect of a book deal featuring my trading rules and insights. In order to invest using my recommendations, you need to open a trading account with a brokerage house that offers options trading, as I do not invest other people's money.

In fact, I encourage all followers of my DITM calls strategy to become independent traders, learning everything they can about the stock market and options trading, and therefore being able to exercise their own sound judgment as to where they will spend their investment dollars.

At the time of publication, Dykstra had no positions in stocks mentioned.

Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."