The Anatomy of an XOM Earnings Trade

If you have been following our trading partner J.W. Jones on his Apple options trades you'll want to take a minute to see how he uses the same methods to trade COT favorite ExxonMobil [XOM].........

One of the most interesting aspects of options is the myriad opportunities presented for high probability trades for those who understand the details of option behavior.

For example, I have recently discussed the routinely observed collapse of implied volatility immediately following an earnings release. We have looked at several examples of profitable trades constructed to benefit from this expected decline in implied volatility.

Today I would like to review another group of trades based on a fundamental characteristic of option pricing. In order to understand this phenomenon, we need to review briefly the anatomy of the price of an option.

Remember that an option’s price, while quoted as a pair of bid / ask values, is in reality the sum of two components. The current market price is the combination of the extrinsic and intrinsic components of the individual option contract.

The extrinsic component can comprise the entirety or only a variable portion of the market price of an option. All options contain at least a small amount of extrinsic component.

The intrinsic component of an option may comprise the majority of the value of an option, as for example a "deep in the money" option. Conversely, an individual "out of the money" option routinely contains no intrinsic value whatsoever.

Here is an example of the trades and the charts to go with them.



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Marathon Oil Corporation Reports Fourth Quarter and Full Year 2012 Results

Marathon Oil Corporation (NYSE:MRO) today reported fourth quarter 2012 net income of $322 million, or $0.45 per diluted share, compared to net income in the third quarter of 2012 of $450 million, or $0.63 per diluted share. For the fourth quarter of 2012, adjusted net income was $388 million, or $0.55 per diluted share, compared to adjusted net income of $454 million, or $0.64 per diluted share, for the third quarter of 2012.

Marathon Oil reported full-year 2012 net income of $1.582 billion, or $2.23 per diluted share. Net income in 2011 was $2.946 billion, or $4.13 per diluted share. Net income for 2011 included income of $1.239 billion from the Company's former Refining, Marketing and Transportation business, which was spun off on June 30, 2011 and reported as discontinued operations in 2011, so income from continuing operations is better suited for year over year comparison. For full year 2012, adjusted income from continuing operations was $1.736 billion, or $2.45 per diluted share, compared to adjusted income from continuing operations of $2.293 billion, or $3.21 per diluted share, for full year 2011.

Read the entire earnings report

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Baker Hughes to Retain Process and Pipeline Services Business

Baker Hughes Incorporated (NYSE: BHI) announced today that it will retain its Process and Pipeline Services business. Going forward, this business will be reclassified as continuing operations within the Industrial Services segment.

Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. The company's 58,000 plus employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. For more information on Baker Hughes' century long history, visit Baker Hughes.com
 

Learn John Carters Elephant Trade Secret at this Wednesdays Free Webinar

Learn John Carters Elephant Trade Secret

I just got word of John Carter putting on an exclusive free event this week where he's teaching ALL of his best swing trading techniques and tricks and I for one won't miss it.

Just click here to get details and seat reservations

John's also going to teach his exclusive "elephant trade" technique....the one that's helped him work on his golf game while paying for his kids college!

The event is FREE and will be Wednesday evening at 8 p.m. and all you have to do is sign up.

See you in the markets and we'll see you Wednesday evening,

Ray @ The Crude Oil Trader

Crude Oil Demand Picking up on China and U.S. Growth

Global oil demand this year is expected to accelerate at nearly double 2012's pace as stronger economies in China, Latin America and the U.S. offset sluggishness in Europe, according to the Economist Intelligence Unit.

Consumption worldwide will average nearly 91 million barrels a day in 2013, up 1.5% from about 89.7 million barrels a day in 2012, Economist Intelligence Unit analysts said in an updated monthly forecast. Estimated 2013 consumption would be an all time high for any year, based on industry data. Last year's use was up 0.8% from 2011.

Among the wealthiest nations and regions, demand trends for the European Union and the U.S. probably will diverge. The U.S. is now expected to post "modest, but still positive, growth… as the economy there stabilizes," the report said. Meanwhile, "recession continues to bite" in the EU, causing further contractions in demand.

U.S. demand is projected to grow 0.1%, compared with the small contraction the group estimated previously. EU consumption is forecast to decline 0.8%, while China's demand will climb an estimated 4.5%, to an average of 9.97 million barrels a day.

Read the entire "The Economist" report
 

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Update on Todd's RHT Trade and A New JOY Global Long Trade

In today’s video COT contributor Todd Mitchel show us where he is trailing his stop up to lock in more profits in the RHT (Red Hat, Inc.) stock trade, which by the way is doing exactly what he said it would do. He will then discuss another long stock trade (JOY = Joy Global, Inc.) that he put on yesterday afternoon at 63.21.

This trade is working out very nicely too.....80% of the first profit objective has already been hit at 65.17 (+1.96 point profit per share already) – and now his trailing stop has already been moved up to 63.60 locking in .39. So, regardless what JOY does from here, he came out way ahead and the trade is a winner. Be sure to watch the entire video for all the details and have a fantastic weekend!

Watch "Update on Todd's RHT Trade and A New JOY Global Long"


20 Survival Skills for the Trader

Are Natural Gas Prices Headed Lower?

The natural gas futures contract has been trying to push higher since the immediate sell off after yesterday's EIA inventory release. However, as of this writing it looks like that effort is starting to wane.

Aside from the fact that yesterday's net withdrawal from inventory was bullish versus last year and the five year average for the same week it is not going to be repeated in next week's inventory based on the warm spell this week. In addition the inventory withdrawals for the next several weeks are likely to underperform versus history basis the latest NOAA six to ten day and eight to fourteen day forecast which both remain bearish.

The six to ten day forecast covering the period Feb 6 to the 10th is projecting above normal temperatures across the eastern two thirds of the country with the mid west expecting strongly warmer temperatures. The eight to fourteen day forecast is marginally less bearish in that the above normal temperatures are forecast for the eastern half of the country for the period February 8th through the 14th.

As it looks at the moment the first half of the February will likely experience less than normal levels of heating demand for the first half of February and thus not supportive of higher prices or at least not supportive of the market breaking out of the upside of the trading range (about $3.50/mmbtu) during that period.

Read Dominick Chirichella entire article and great chartwork.



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Chevron Reports Fourth Quarter 2012 Earnings

Chevron Corporation (NYSE: CVX) today reported earnings of $7.2 billion ($3.70 per share – diluted) for the fourth quarter 2012, compared with $5.1 billion ($2.58 per share – diluted) in the 2011 fourth quarter. Results in the 2012 period included a gain of $1.4 billion from an upstream asset exchange.

Full year 2012 earnings were $26.2 billion ($13.32 per share – diluted), down 3 percent from $26.9 billion ($13.44 per share – diluted) in 2011. Sales and other operating revenues in the fourth quarter 2012 were $56 billion, down from $58 billion in the year ago period, mainly due to lower crude oil volumes.

“Chevron delivered another very strong year in 2012,” said Chairman and CEO John Watson. “Our upstream portfolio continues to produce excellent results. We’ve now led the industry in earnings per barrel for over three years. Our downstream businesses also delivered highly competitive earnings per barrel.”

“Strong cash flows allowed us to invest aggressively in our major capital projects and to acquire several important, new resource opportunities. We also raised the dividend on our common shares for the 25th consecutive year and continued our share repurchase program, both of which demonstrate our commitment to providing near term, top tier returns to our shareholders”.....Read the entire Chevron earnings report.


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Exxon Mobil Corporation Announces Fourth Quarter 2012 Results

ExxonMobil [XOM] reports fourth quarter 2012 earnings were over $9.9 billion, up 6% from the fourth quarter of 2011. Full year 2012 earnings were $44.9 billion, up 9% from 2011, with record earnings per share of $9.70.

Capital and exploration expenditures were a record $39.8 billion in 2012 as they continue pursuing opportunities to find and produce new supplies of oil and natural gas to meet global demand for energy.

Capital and exploration expenditures were $12.4 billion, up 24% from the fourth quarter of 2011. Oil equivalent production decreased 5% from the fourth quarter of 2011. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production decreased 2%.

Cash flow from operations and asset sales was $14.0 billion, including proceeds associated with asset sales of $0.8 billion. Share purchases to reduce shares outstanding were $5 billion. Dividends per share of $0.57 increased 21% compared to the fourth quarter of 2011.....Read the entire ExxonMobil earnings report.


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National Oilwell Varco Announces Fourth Quarter and Full Year 2012 Earnings

National Oilwell Varco (NYSE: NOV) today reported that for the fourth quarter ended December 31, 2012 it earned net income of $668 million, or $1.56 per fully diluted share. Earnings improved nine percent compared to the third quarter of 2012, and improved 16 percent compared to the fourth quarter of 2011.

Excluding $51 million in pre-tax transaction charges and a net $69 million tax benefit related to certain U.S. foreign tax credits in the fourth quarter of 2012, net income was $638 million, or $1.49 per fully diluted share, down two percent from the third quarter of 2012, and up nine percent from the fourth quarter of 2011, excluding transaction charges from all periods.

The net $69 million tax benefit resulted from a strategic reorganization of certain foreign operations to more fully integrate recently acquired business groups. Revenues reported for the full year 2012 were $20.04 billion, and net income was $2.49 billion, or $5.83 per fully diluted share. Operating profit for the full year 2012 was $3.55 billion......Read the entire NOV earnings report.


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