I'm uncomfortable about it, but I bought
shares Monday under $30 and sold some higher calls against it.
It's tough to admit to, because the company has certainly perpetrated the worst environmental disaster we've ever seen in our oceans, one that will certainly reverberate for decades.
But I'm a trader. And the question you have to ask a trader is: Are we here to find ways to make money or not? Answer: We're here to find ways to make money.
There are a lot of reasons why I now see BP shares as a reasonable, if speculative, trading opportunity. First, I think that BP has done all that has been asked of it, both publicly and privately, to try and ring fence funding for the huge liabilities they are likely to face.
They agreed to the $20 billion fund requested by President Obama. The fund is being administered by the very honest and fair lawyer Ken Feinberg, who also administered the 9-11 funds with great success.
Privately, BP has been looking for ways to be sure that its cash will be sufficient to withstand the onslaught of claims. After floating the idea of a public 10-year bond offering, it has backed away from it as being too expensive and is looking to secure funding through its rolling lines of credit. It looks as if those efforts will be successful.
More on BP Cramer: BP Bankrupty Still a Possibility
In the Gulf, BP's containment efforts continue to improve. BP now reports collecting up to 25,000 barrels of oil a day from its containment cap. While it is so far unknown whether that represents a majority of the oil spewing from the riser pipe, it still represents an increasing success in collection.
The drilling of relief wells is running ahead of schedule. Although it is unlikely that its first attempt at intersecting the casing will be successful, it would be a huge boost for the stock if in fact August turns out to be when the runaway well at Macondo is capped.
It is also looks like BP has had significant success in its containment efforts to keep much of the spill away from the coasts. Of course a summer storm could foul those efforts in a hurry, but more boom lines and skimmers have been employed in this clean-up effort than at any other time in history, and so far it's working. Twenty-eight foreign nations have further offered their help with skimmers and other siphoning ships; so far only three countries have been able to get through the bureaucracy and been able to pitch in. So, even more help is waiting in the wings to keep the damage from this gargantuan spill to as small an area as humanly possible.
Two other, more psychological factors seem to move me to look closely at BP shares as an opportunity. Tony Haywood, the CEO of BP, has done absolutely everything wrong from a PR perspective. He apparently "wants his life back," has been spotted at a yacht race and has stonewalled Congress, repeatedly using the "Sergeant Schultz" excuse -- ("I know no-thing!"). After all of that, not much more can happen to make BP and its CEO more hated. We must be close to the bottom of the selling.
Another, less obvious, psychological factor seems telling: The priority of the Gulf disaster story seems to be waning just a bit. In newspapers, daily stories on the Gulf have started appearing below the fold and the number of stories on
news has steadily decreased from over 25,000 to less than 6,000. We're even getting used to the "spill cam" playing in the right corner of the
screen and are paying it less attention. Admit it, you are.
These psychological factors matter. And they are another good reason to look at the Gulf situation more dispassionately and consider buying BP shares.
Of course, a good hurricane or a further problem at the well can reshuffle this deck of relatively decent news in a hurry. The headline risk from this trade is far from out. That's why I've played this using a covered call strategy, buying the shares under $30 dollars while selling the October 36 dollar calls.
This basically caps my upside potential at 25% for the next four months, a profit I wouldn't of course sneeze at. I will also be very careful to limit my loss to the same or less amount . If BP shares get hit again into the low $20's, I will be looking to get out, reassess BP's ability to survive and count the trade a bust.
The bond traders used to have a phrase: ''there are no bad bonds, only bad prices" -- meaning that every stock or bond has a price that represents a real or speculative value and is worthy of examining. I think BP shares have reached this price and I'm buying.
At the time of publication, Dicker was long BP.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.
Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.