After hanging around the low $26's for awhile, since October 10 this has gone parabolic. Why? Do we know anything more now than then? Yeah, another S-4 amendment was filed, but that was today, and appeared to have limited impact on the price.
I'm concerned this (relative) euphoria could come crashing to earth if the Berry deal runs into a snag, not that it dies, but the time limits get so stretched that they have to renegotiate the deal in some fashion. The other problem might be disappointing Q3 metrics, coverage (however that's defined) mired below 90% for example. Securities have a tendency to crash badly when high hopes are dashed or even tempered.
Unfortunately, there doesn't appear to be a cost effective way to protect oneself. I have substantial profits in the units and calls, but the only puts I found that are half way reasonable are the Jan 14 $25's at around $1 - 1.10. The price is okay, but not for January, you really need to go farther out if you want to give yourself a chance to catch the brutal downside that would result from the Berry deal collapsing completely. I think this uncertainty can drag into the new year easily, but the April puts don't entice me. To get a buck per contract you have to go to $21-22, and that's too low, I could see it bottoming out there, but no home run on the put if that happens. And you'd need a four banger or so to offset the damage.
So, while I'm glad to see green, I have to confess, I would have preferred a more gradual advance, and, of course, some actual reason beyond the trading to get optimistic.
Actually, I was hoping for an up day to possibly buy a put spread, and for general principles of course, I do own this puppy big time. It's only a day, probably just profit taking, it ran up pretty far for traders.
You have a lot to learn about algebra if you think a few dollars is parabolic, and do you honestly think you will find out something on this or any other message board before IT happens.
Sentiment: Strong Buy
If you go to a 6 month chart and drag a line across the lows from July 5th, you will see a very clear trend. This weeks big move rises a bit above that, but not by so much.
I think there are 2 things that are reinforcing each other 1. the likelihood of maintaining the distribution - likely to be less rejection in q3 plus production was ahead of guidance which itself was up, so probably going to be in the mid to high 90s coverage, and 2. likelihood of berry merger - as the price nears 30, the gap with linnco descreases and BRY price declines, this becomes much more likely. It is circular because if 2 is realized then 1 is realized and vice versa. Even without 2, the new permian aquisition will get coverage north of 1.0.
Big tailwinds are pushing upstreams - improved outlook for ngl pricing, huge improvements in well productivity and decline rates due to technology, lower inventories due to completed infrastructure to cushing, excess production can be refined to diesel and exported, lng exports will reach 10% of US production by 2020, so expect dry gas prices to increase. LINE is still high yielding compared to other upstreams as it is yielding 10%.
Ruby....I understand your thought processes w/r/t protecting against catastrophic losses. It is very expensive to hedge that way and virtually cost prohibitive.
In numerous cases, I have gone through multiple mental exercises trying to figure out optimal hedging method to protect out-sized profits in particular securities only to back off once the cost is calculated.
If you are still interested in partial hedge, your best bet is a put spread where you buy a higher priced put option and sell a lower priced put (say $4 or $5 lower). This lessens the dollar outlay and protects up to certain level. If there is a huge dip, you run the risk of being long again at the lower put price (which you sold to collect the premium) and minimize your initial hedging expense.