Option Play of the Day – Valero

In my prior post I explained why I buy LEAP’s. Now here’s a LEAP play for you.

I just bought (11:24am CST) Jan 08 $67.50 Call of VLO@14.30.

My time premium is around $5 [Option price - (current stock price - strike price)]

[$14.30 - ($76.80 - 67.50)] = $5.00

Why did I choose this?

• Valero (VLO) should have a blow-out quarter. The crack spread is at historic highs
• Hurricane season is coming. Should spike fuel prices
• Demand is expected to rise – AAA estimates Memorial Day travel will be up 1.7% from 2006, mostly driving
• Supply of refining capacity is not rising as fast as demand. Utilization has risen from 82% to 89% from 2001-2007. What this means is capacity is much more sensetive to refiner maintenance. Currently there are several plants under maintenance which will keep prices high for some time.
• Boone Pickens increase his stake in Valero. He is one of the experts in the energy industry.
• It is one of my favorite stocks. When I make money with Valero it makes me feel like I am offsetting my pain at the pump (and then some).

There you have it. I fully expect to post back 7 days from now updating you about the 15% I’m up on this trade. I have an aggresive $2 stop order on this option.