Shots Fired: My Energy Trades For This Week

Last week I told you about my position in LNG.

That was in my "A little embarrassing confession" article, if you want to go back and read it.

At the time, I made the case for energy stocks as one of the market's overlooked opportunities.

The bull case was simple. The market had spent weeks assuming peace talks in the Middle East would keep grinding forward. Oil and energy stocks drifted lower.

Meanwhile, supply issues were still unresolved and demand was growing as governments and corporations began to refill empty stockpiles. There was also an underlying risk that peace talks could unravel, driving oil prices higher.

Well, guess what.

Things blew up.

On Tuesday, tankers came under attack again in the Strait of Hormuz. At least three of them were hit, including a Qatari LNG tanker that caught fire.

Iran is in the middle of a week of mourning for its Supreme Leader, talks are paused, and Trump publicly warned Iran this week to make a deal or the US will "finish the job."

Even after all that, oil only moved up about 2.5%. A real move, but a measured one. Nowhere close to the panic spikes we saw earlier in this conflict when crude cracked $100.

Which tells me the market still isn't pricing in the true weight of this situation. There's still a lot of room for this trade to run.

So yesterday, I made a move.

I sold my existing LNG call contracts and bought a new set with a higher strike price.

I'm still fully in the trade. Still betting on LNG moving higher. I just adjusted the position to lock in profits and set up a new position with a better reward-to-risk profile.

This is the in-the-money options approach I use all the time. When a stock moves in my favor and the calls I own get deep in the money, I can transition into new contracts at a higher strike.

Same directional bet, same underlying trade, just reset for the stock's new price level. I lock in some of the built-up value and keep full exposure to more upside from here.

LNG has quietly become one of the better setups in the market over the last few weeks. Energy is now working, even while most of the headlines stayed focused on tech.

The next chapter: OXY

At the same time, I've been building a new position in Occidental Petroleum (OXY).

This one is earlier stage. Not proven out yet the way LNG has been. But the setup is one I like.

Shares recently bounced right off the 200-day moving average, a level that's likely to be a key support line in the post-Iran war environment.

A bounce off long-term support is a good technical signal on its own. But this one came with a real catalyst behind it, the same Strait of Hormuz escalation I mentioned above.

Why this looks like an asymmetric trade

Oil traders and energy investors had gotten comfortable.

With peace talks appearing to make progress in recent weeks, oil prices and energy stocks had drifted lower. Markets were pricing in relief. Pricing in "this is winding down."

Tuesday's attacks are a reminder that it isn't wound down yet. Not even close.

Here's the asymmetry I see. Current prices already reflect a fair amount of optimism about peace.

That means if hostilities keep escalating, and a resumption of real conflict in the strait disrupts supply further, oil has real room to run higher, and energy stocks like OXY have real room to follow.

On the other hand, if a peace deal does get done, I don't think energy stocks have all that much further to fall. Much of that good news is already priced in.

Bigger potential upside if things get worse. Limited additional downside if things get better. That's the kind of setup I like to trade.

The bottom line

I'm not predicting how this ends. Nobody can, and anyone who tells you they know for certain what happens next in the Middle East is guessing.

What I can tell you is how I'm positioning for it.

Staying in a proven winner in LNG by rolling the trade higher. Starting a new position in OXY where the technical setup and the news are lining up in the same direction.

Both structured so my risk is defined and my potential reward is bigger than what I have on the line.