Events Trader #56: It's time to buy back into BP!

The markets are in freefall. And suddenly investors are being panicked by problems from every corner of the globe.

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25th May 2010

It's time to buy back into BP!

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The markets are in freefall. And suddenly investors are being panicked by problems from every corner of the globe.

Spanish banks are being bailed out. The Thai government is struggling to quell a bloody rebellion. And Kim Jong Il is doing his best to upset his neighbours to the south.

I have good news though this is not the end of the world.

Very soon now, investors are going to realise that the Greek debt crisis can be contained (for a while). And Kim Jong Il is just a drug-crazed pyschopath who likes a little attention.

In fact, I think this savage sell-off will prove a great entry point for going long on the FTSE. I'll let you now exactly when in a coming Events Trader.

But today I want to talk about another trade that investors are completely losing their head over - BP. Three weeks ago we got in too early on this stock. But I can't believe the drop we've seen since then.

If you haven't done so already, now is the time to buy into BP. Because I think we'll see a 27% gain from here.

How you could make a snap 27% gain on BP

In the three weeks since I recommended buying BP at 572p, we've seen the stock fall 15% - triggering our stop loss at 500p. In that time, millions of gallons of oil have leaked into the Gulf of Mexico. And recrimination against the group has only intensified.

But the facts haven't changed. BP are not the main culprits for this crisis. The platform was leased and operated from Transocean [RIG US] and the safety valve that failed on top of the oil well was designed and placed in situ by Halliburton [HAL US].

The cost of this crisis is also been completely blown out of perspective. According to a report issued today by UBS, the cost of the cleanup operation is put at $12bn but $21.3bn has already been wiped off its market capitalisation since the Deepwater Horizon went up in flames.

BP is not going to go bust! Even if the US imposes a massive fine, it will not go bust. This is a massive group that is now trading 6.3 times earnings and offers a dividend yield of 8.8% to boot.

That's why I'm recommending that you buy in at 485p. I maintain my target at 615p. Because I think this is a great opportunity to trade what is a hysterical reaction to BP's role in this crisis.

Before I go this week, just to note that our stop loss on Nokia also got triggered in the mass sell off in the markets. My apologies to those who suffered a loss here. Unfortunately, here is another great trade that got caught up in this rout.

Overall we were quite light in open positions heading into the recent turmoil. But I think that this volatility is going to provide a heap of great trading opportunities for us. In this kind of environment, you only have to get one right and you can almost forget about what the markets do for the rest of the year and just go on holiday.

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I will be back with more updates and trading ideas next week. If you want to contact me you can contact me at my e-mail

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Riccardo Marzi

Events Trader

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Trader Portfolio
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Distressed Assets
IssueTip dateCompany/ AssetReccomendationPrice thenPrice now (25th May)Gain (%)
EVT #219/05/2009Barclays XS0110537429Buy6597.37p49.80
EVT #219/05/2009Nationwide XS0284776274Buy4873.13p52.35
EVT #1518/08/2009Barclays XS0205937336Buy60.770.88p16.77
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Merger - Risk Arbitrage
IssueDateCompany/ AssetDetailsPrice now (25th May)Exp. Closing DateChange (%)
EVT #3024/11/2009Iberia (SM: IBLA);British Airways (LSE: BAY)Buy Iberia @ €2.02Short-sell British Airways @ 204pRatio IBLA 0.98: 1 BAYIBLA: €2.06;BAY: 184pQ4 20104.25%
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Other Trades
IssueDateType of TradeCompany/ AssetDetailsPrice now (25th May)Change (%)
EVT #2810/11/2009LongDragon Oil (LSE: DGO)Buy at 447p398p-11%
EVT #3208/12/2010LongReaders Digest bond DBUY ISIN US755267AF83 at 1.5c$1.25-17%
EVT #5204/05/2010*CLOSEDLongNokiaBuy at €9.04 Target around €10. Set stop loss at €8.40STOP LOSS TRIGGERED AT €8.40-7%
EVT #5306/05/2010*CLOSEDLongBPBUY at 572p Target 615p. Set stop loss at 500pSTOP LOSS TRIGGERED at 500p-13%
EVT #5306/05/2010LongBPBUY at 485p Target 615p.485p0%
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IssueDateType of TradeCompany/ AssetDetailsPrice now (25th May)Change (%)
EVT #3208/12/2009LongING (AMS: INGA)Buy it if it falls below €5.40€5.95N/A
EVT #4016/02/2010LongICAP (AMS: IAP)Buy at 300p364pN/A
EVT #4309/03/2010LongMarine Harvest (OL:MHG)Buy it if it falls below 4.5 Kr5.06 KrN/A
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IssueDateType of tradeCompany/ AssetDetailsStatusGain (%)
EVT #219/05/2009Distressed assetLloyds XS0107228024Buy at 45-46Sold 10/11/09 at 8891.0%
EVT #326/05/2009Merger- risk arbitrageWyeth (US: WYE)Pfizer (US: PFE)Buy WyethShort-sell PfizerRatio WYE 1 : 0.985 PFEMerger completed 15/10/098.8%
EVT #723/06/2009Merger- risk arbitrageSchering Plough (US: SGP)Merck (US: MRK)Buy Schering-PloughShort-sell MerckRatio SGP 1 : 0.5767 MRKMerger completed 03/11/095.9%
EVT #1518/08/2009Distressed assetHBOS XS0353590366Buy at 52Sold 10/11/09 at 9990.3%
EVT #1518/08/2009Distressed assetRBS XS0193721544Buy at 65.4Sold 10/11/09 at 61-6.7%
EVT #1625/08/2009Index TradingiPath S&P 500 VIX (NYSE: VXX)Bought at $55 - 56.50Sold at $43.70 on 27/10/09-22.6%
EVT #1808/09/2009Distressed assetRBS XS0102480869Buy at 75Sold 10/11/09 at 68-9.3%
EVT #1915/09/2009ShortNational ExpressShort sell at 480pClosed short at 390p 19/10/0923%
EVT #2029/09/2009Options TradingVodafonePut option Strike 140November 2009 @ 6pSold at 10p 13/10/0967%
EVT #2026/05/2009Options TradingFTSE 100Put option Strike 5,100November 2009 @ £1.40Sold at £2.25 02/10/0960%
EVT #2704/11/2009Options TradingCadburyDecember 2009 Put, Strike 24p / December 2009 Put, Strike 740pSold 10/11/09 for negligible gain0%
EVT #3512/01/2010Options TradingCadburyBUY the Cadbury's March Put option, strike price 760p at 23pCLOSE POSITION AT 3-87%
EVT #3726/01/2010LongFTSE 100BUY the FTSE at 5,205 (midpoint)Closed at 5,155 02/02/10Loss of 55 points
EVT #1228/07/2009MergerSun MicroBuy Sun Micro only: 50% at $9.24; 50% at $9.15 (so average price $9.19)Merger completed3.37%
EVT #2206/10/2009MergerXeroxXRX: $8.88Merger Completed5.5%
EVT #2810/11/2009LongBNIBuy BNI at $97.60Merger Completed2.7%
EVT #2313/10/2009LongLadbrokes (LSE: LAD)Buy at 140p; double up if hits 120p: TARGET 180p147p5%
EVT #4323/02/2010CLOSEVT GroupBuy at 673p762p13%
EVT #3512/01/2010Merger*CLOSED* Buy 3Com at $7.64$7.90 (details on HP deal to follow)Q2 20103.40%
EVT #4916/04/2010ShortRyanair*CLOSED* Short at €3.90 (stop loss at €3.90)€3.900%
EVT #4630/03/2010LongArriva (LSE: ARI)*CLOSED* Buy at 680p764.5pN/A
Closed average % gain12.3%

Your capital is at risk when you invest in shares, never risk more than you can afford to lose. The share recommended is denominated in a currency other than sterling. The return from such shares may increase or decrease as a result of currency fluctuations. Please seek independent personal advice if necessary.

Spread betting is not suitable for everyone - ensure you fully understand the risks involved and never risk more than you can afford to lose. Prices can move rapidly against you and resulting losses may be more than your original stake or deposit.

Figures are calculated using the closing mid-prices on the date on which shares are first recommended. All gains are gross, and returns will be affected by dividend payments, dealing costs and taxes. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments.

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