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Larry D. Spears

These Natural Gas Stocks Will Bounce Back As Demand Rises

Now is the perfect time to invest in natural gas stocks.

To many investors, that may seem counterintuitive. After all, natural gas has been the red-headed stepchild of energy for years.

But prices for this plentiful alternative fuel are just beginning to turn higher after a four-year slide that saw values slashed by more than 80%.

That price decline – from a high of $10.38 per million British thermal units (BTUs) in July 2008 to just $1.83 in April of this year – was primarily the result of a decade-long increase in U.S. gas production, which climbed by 21.6% from 2002 to 2011.

That trend finally has begun to reverse, as the rate of inventory build-up has fallen steadily for almost three months. What's more, the size of the current natural gas surplus relative to year-ago levels has fallen by 23% since late March.

Three big reasons explain this shift:

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Commodities

Investing in Graphene Stock: How to Get in on this "Miracle Material"

Last December, Money Morning technology specialist Michael A. Robinson told you about a radical new material that would soon have a pervasive impact on the U.S. economy – and the entire human race.

Robinson detailed how this new material is so powerful and versatile, it's going to play a key role in new products for the U.S. military, leading tech companies, and medical researchers.

"Stronger than steel and lighter than a feather, this high-tech medium will shape virtually every part of our daily lives by the end of this decade," said Robinson. "The possible uses are almost limitless."

It's called graphene, and it's one of the most versatile elements ever created – useful in a multitude of applications and potentially capable of redefining the world as we know it.

The "Miracle" of Graphene

Specifically, graphene is a two-dimensional structure made from the carbon atoms in graphite – the stuff in pencil leads – but bonded together in honeycomb-like sheets a mere one atom thick.

Imagine a sub-microscopic chicken-wire mesh, but made up of carbon atoms and their connectors rather than metal.

First envisioned back in 1947, graphene didn't become a reality until 2004, when several teams of researchers demonstrated that single layers of carbon atoms could actually be isolated.

Now there's a mad dash to exploit the unique properties of the material, which are impressive:

Oil Price Forecast: Expect Oil Prices to End the Year Higher

Forecasts for oil prices in the second half of 2012 and on into 2013 are varied, but there's one point on which virtually all agree: Oil prices won't be going down.

One reason is that oil prices have already dropped substantially in recent weeks.

In fact, oil futures – as measured by the July New York Mercantile Exchange (NYMEX) contract for West Texas Intermediate (WTI) crude – closed below $90 per barrel last week, the lowest level for an active contract since October 2011. That's down $17 a barrel since the beginning of May.

Two factors have contributed to the decline in oil prices:

  • A modest increase in U.S. crude supplies – up 3.8% in April from March levels and 1.5% from a year ago – primarily due to continued low demand as a result of the slower-than-expected economic recovery.
  • Increasing strength in the U.S. dollar – the global pricing currency for crude oil – due to safe-haven buying in response to continued concerns over Eurozone instability.

Oil Prices Continue to Climb

Longer-term, however, both of those situations should stabilize, and then reverse – meaning current oil price levels will likely serve as a base for a rebound in the second half of the year, continuing into 2013.

Even so, the leading "official" sources for oil-price forecasts aren't projecting major spikes, either.

The U.S. Energy Information Association (EIA), in its most recent report issued May 8, predicted prices for WTI crude will average about $104 a barrel for the rest of the year, and that costs to refiners for all crude – domestic and imported – will average $110 a barrel.

The WTI number is down $2 a barrel from March estimates, but $9 a barrel higher than the 2011 average, while the refiners' cost figure is up $8 from 2011.

The American Petroleum Institute (API), a trade organization of more than 500 oil and natural gas companies, didn't issue price forecasts for crude in its most recent (May 18) report, but noted that increased domestic production, slightly higher crude oil stocks (374.8 million barrels) and lower imports in April should serve to keep prices stable to modestly higher going forward.

API also expressed optimism that rising crude production in North Dakota, which hit 551,000 barrels per day in March, and a possible reversal of President Obama's rejection of the Keystone Pipeline project could keep price hikes in check for the remainder of the year.

Such optimism wasn't nearly as prevalent among many private analysts and industry commentators.

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Silver Prices: An Option Trading Strategy That Tells You When to Buy

As last week's Money Morning special report pointed out, the long-term fundamentals for silver prices are decidedly bullish.

However, in today's volatile market, picking the right time to buy silver is something of a guessing game.

But if you are familiar with options, you can let them be your guide in learning precisely when to buy.

And here's the best part: This option trading strategy will only cost you a few dollars.

It works with either options on silver futures – e.g., the standard 5,000-ounce Comex contract, recently valued at around $140,000 – or any of the much more affordable silver-based exchange-traded funds (ETFs) on which options trade.

Taking the Guesswork Out of Silver Prices

For ease of explanation, I'll base our example on the iShares Silver Trust ETF (NYSEArca: SLV), recently priced at $27.34. For comparison purposes, the price of a single SLV share typically tracks the price of one ounce of silver, but is usually 75 to 80 cents lower.

Here's what you do:

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Options Trading: Three Ways to Win Big with a Bearish Calendar Spread

Think some of Wall Street's higher flyers look vulnerable to a broad market pullback?

If so, they could be perfect candidates for a low-cost, low-risk options trading strategy that could pay off big time if we get another move like last Friday's 169-point Dow plunge.

The strategy is called a "calendar put spread," and it works like this:

  • You sell a slightly out-of-the-money put option with a strike price just below the current market price of the underlying stock – with a near-term expiration date.
  • You then simultaneously buy a put option with the same strike price but with a more distant expiration date.

The cost – and the maximum risk – is the difference between the two option premiums, referred to as the "debit" on the spread. But because the longer-term put you buy "covers" the shorter-term put you sell, there's no added margin requirement.

It may sound complicated, but it's not once you understand how to employ this bearish options trading strategy.

Options Trading Primer: A Potential 900% Gain in Six Weeks

Here's how a bearish calendar spread might work with Exxon Mobil Corp. (NYSE: XOM), which has held up better than many other oil stocks in recent weeks, closing last Friday at $84.57, barely $3.00 off its 52-week high:

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DRIPs: How to Invest in Dividend Reinvestment Plans

The real secret to long-term investing success is income – and with stocks, that means dividends.

Numerous studies, both academic and financial, have found dividends accounted for more than 60% of total U.S. stock market returns since 1870.

More recently, a study by Ned Davis Research covering the period from 1972 through 2008 found that dividend-paying stocks provided an annual return of 7.6% versus a mere 0.2% for non-dividend-paying shares.

What's more, companies with a record of steadily raising their dividends returned an even more impressive 8.6%.

But if you really want to boost your returns, investing in DRIPs – dividend reinvestment plans –is a safe, steady road to building true wealth.

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How to Trade Weekly Options

To loosely paraphrase Robert Burns, the best-laid plans of mice and stock traders sometimes go awry.

But with some creative use of weekly options, that doesn't necessarily mean you have to take your losses.

Here's an example of what I mean.

Just under two weeks ago, we suggested a "short iron condor" as a possible short-term strategy for playing the release of first-quarter earnings reports for some of the leading financial stocks, using J.P. Morgan Chase (NYSE: JPM) as a specific example.

As it turned out, JPM's earnings handily topped the estimates – coming in at $1.31 per share versus a projected $1.14, on revenues of $26.7 billion ($24.4 billion had been predicted).

That should have sent the stock nicely higher, giving us a quick gain on our condor – and JPM did indeed try to rally – but then our best-laid plans took a wrong turn.

The broad market turned sharply lower that Friday, with the Dow Jones Industrials dropping 136.99 points and the S&P 500 losing 17.31, dragging J.P. Morgan along with it.

Long story short, over the next five days JPM see-sawed higher and lower – but save for a few moments on Thursday, it never moved out of our $43-$45 maximum-loss range. The trade went south.

But had you been on your toes, you would have noticed this about JPM: In spite of the pressure from a weak overall market, the stock demonstrated strong technical support at the $43-a-share level. Both times it tested $43, it bounced quickly back – a pattern it repeated Monday, when it ignored the broad market sell-off and rapidly rebounded from a lower gap opening near $42.

The rest of this week, it's again traded solidly above $43 a share. In fact, a quick look at the long-term chart shows that – with the exception of Monday – JPM hasn't closed below $43 since March 12th. And, given the healthy earnings and a "powerful buy" rating last Thursday from Zacks Investment Research, it probably won't close below that level again.

At least not in the next week or two…

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Four Defensive Stocks for a Market Pullback: MCD, MO, CAG, JNJ

If you looked at just the first-quarter results you could be forgiven for thinking that everything in the stock market is rosy.

The Dow Jones Industrials and the S&P 500 turned in their best performances since 1998, rising 8.14% and 12.0%, respectively.

Meanwhile, the Nasdaq was even stronger, riding a tech-stock rally to a gain of nearly 19% – its best yearly start since 1991.

But as every seasoned investor knows, the markets never go straight up or straight down.

Prospects for continued strength may seem bright, but the recent five-day slide that took the Dow down almost 550 points might be pointing to something else entirely.

That's why now is the perfect time to consider shifting at least some of your funds into "defensive" stocks.

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Options 101: Credit Put Spreads Can Boost Your Gains and Lower Your Risk

Last month, Money Morning showed you how to use a technique called selling "cash-secured puts" to generate a steady flow of cash from a stock – even if you no longer own the shares.

It is a highly effective income strategy that can also be used to buy stocks at bargain prices.

But selling cash-secured puts does have a couple of drawbacks:

  • First, it's fairly expensive since you have to post a large cash margin deposit to ensure that you'll be able to follow through on the transaction if the shares are "exercised." ­Thus the name, "cash-secured" puts.
  • Second, if the market – or the specific stock on which you sell the puts – falls sharply in price, you could have to buy the shares at a price well above their current value, taking a substantial paper loss.

Fortunately, there is a way to offset both these disadvantages while continuing to generate a steady income stream.

It's called a "credit put spread" and it strictly limits both the initial cost and the potential risk of a major price decline.

I'll show exactly how it works in just a second, but first I have to set the stage…

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Cash-Secured Puts: Keep the Cash Flowing – Even After You've Sold the Stock

In January, I told you how you can double or even triple your yield by selling "covered" calls on your dividend stocks.

While this is a safe and highly effective strategy, selling covered calls does have a drawback – of a sort.

If the stock you're holding rises in price before the calls you sold expire, you could be forced to sell the shares at the option's designated strike price.

This isn't likely to be a huge problem since you'll be selling your stock at a profit. The problem is that if you no longer own the stock, you won't be getting the dividend.

Fortunately, this problem has an easy solution. It's a strategy called selling "cash-secured puts."

Using cash-secured puts, you can maintain your cash flow while you're waiting to repurchase the actual stock at a price equal to or below where you just sold it.

How to Use a Cash-Secured Put to Generate Income

Here's how it works.

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