Oil Services

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With the soaring price of oil, Oil Services remain an interesting place to be in 2008.

The graph above shows the price of the Oil Services Index (OSX) for the last nine-plus years. The price, in green, shows a six-bagger return for those that took the long ride. Even if one would've waited until the late summer of 2004 to catch the wave, a triple-bagger was in store.

The blue line shows the price in relation to the price's 34-day moving average. The wider the range, the more volatility is in the stock price. The volatility has been declining, with the range of the price move remaining within +/- 10% of its moving average.

Combining the fundamental and technical point of view, I would expect the former high prices in the OSX to be revisited as the price of oil breaks the $100 per barrell mark early in 2008. From there, I would expect another price correction, perhaps disconnected to increasing oil prices, and then another long bull run.

I will be building an Option Vertical Spread, selling Out-of-the-Money calls into the next leg up and then buying more At-the-Money calls as the price corrects.

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