HOW DO YOU PLAY THE XOM/XTO NEWS?

The big story today was the news that Exxon Mobile (XOM) is going to acquire XTO Energy (XTO). This caused a big move today in the natural gas stocks like APA, CHK, APC, and EOG. I received a few e-mails asking "Is it too late to get in?" I don't think it's too late to get in, but I do think that you need to be very smart in how you play it. I don't think a directional option trade (buying a call or buying a put) will work very well for this situation. Not only is the market expected to chop around a bit, but history says that these stocks will probably move sideways for a few weeks. For a more current example, look at the railroad stocks. Warren Buffett announced his purchase of BNI stock on 11/3/09 and the stock gapped up $20. Since then, the stock has flatlined. Some of the other stocks in that sector moved up a bit on that announcement (like GWR, CSX, UNP, NSC, and KSU), but for the most part they have been moving sideways since then. The way I am going to play the news is through the use of Credit Spreads. On CHK, APA, and APC, I would set it up under the 12/9 low. On EOG, under the 50 day MA. On XTO, somewhere below the 10/21/09 high. There is no guarantee that these stocks won't come crashing back down, but the probability is pretty high that they will stay above these levels until the January expiration. If you place these trades, make sure you understand the risk and know how to make the necessary adjustments if it goes against you. If you want to learn the details on these spread trades, make plans to take the Advanced Option Strategies course. As for the market...we are nearing that 1115 resistance area. We might break above it this time, but we could also pull back a bit and continue this sideways trend. By the way....I have been having some trouble with my Option Magic and Virtual Investing Club e-mail accounts. Some of you might still be waiting for replies on your e-mails or invitations to a class. If you have not received an invitation to a class this week, keep in mind that you can use a previous invitation to enter the class. You can also call into the conference call number at the start of class and I can give you the login information over the phone. Please try using a previous invitation first as it could take a long time to start class if I am having to help everyone get logged in. I have also set up a temporary e-mail account at myoptionmagic@yahoo.com. If you feel you have unanswered questions, please resend the question to this e-mail account.