Today's Pick: NES

For today I recon NES puts. Here is the deal with NES: Today they announced a deal with an energy company to build and supply a waterway developmental program that will begin in 2015. So as right now this is all on paper with no money coming in and the forward thinking crowd jumped on it. 

First lets take a look at the announcement NES made today:

SCOTTSDALE, Ariz., Nov. 25, 2014 /PRNewswire/ -- Nuverra Environmental Solutions, Inc. (NES) ("Nuverra" or "the Company"), a leading provider of full-cycle environmental solutions to energy end-markets, announced today that it has entered into a long-term definitive agreement with XTO Energy Inc. ("XTO"), a subsidiary of Exxon Mobil Corporation, to provide water-related pipeline services in McKenzie County, North Dakota.

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Under the agreement, Nuverra will build the 150-mile McKenzie County Pipeline Network ("the Network") to provide produced water gathering and disposal services and fresh water delivery. The XTO agreement is a long-term, fee-based gathering agreement.  

"The construction of this pipeline represents a transformational step in our effort to become a fully-integrated environmental solutions provider in North Dakota," said Mark Johnsrud, Chairman of the Board and Chief Executive Officer of Nuverra. "We are pleased to extend our relationship with XTO to serve their growing water management needs."

"With significant increases in well density and growing water volumes, we believe our pipeline network represents an important complement to our transportation capabilities and provides sustainable and efficient water gathering and delivery solutions for our customers," concluded Mr. Johnsrud. 

The Network will serve XTO's dedicated acreage, as well as other operator wells in the area. The Network will feature fixed, buried pipelines, which will include a gathering line to transport produced and flowback water for disposal or recycling and a distribution line for fresh water delivery.

The Network is projected to cost $125 million to $150 million, based on current engineering and construction specifications, with completion during the fourth quarter of fiscal 2015. Construction is expected to begin in May 2015.

So construction is due to start next may and it is gonna hit this company with almost 150 million in costs. While the company is spending this money, remember, there is no money coming in until it is completed and that will be at the end of 2015. So, the jump today is foward looking expectations by investors and not about true money currently coming in. 

Now on to the technical consideration of this stock:

While there is a sudden big white candle showing which is a positive long signal, I notice that at the same time it shows a breakout, it is also showing a top. by having a candle with a short bottom body and a long upper tail. This shows upper weakness as the stock tried pushing up during the day, then collapsed back to a lower price in the area of the short lower white body.

A problem with this is there is two reverse candles side by side the day before and the day before that signaling a bottom. However on the flip side of that, notice that the RSI is now near the top and the macd is near the top.

What I think will happen: I think that this stock will push up for a bit then collapse as the news settles in and people realize that this stock wont get any money coming in from this announcement for a year. Normally I would just issue a put on this, but I am going to try to play this both ways as I see it. So what I am going to do here is a 1:10 call/put ratio spread. A normal 100% sized put and a 10% of that call to take care of any sudden climbing. Then as the stock peaks out in a few days, I am again going to purchase another 100% put and hopefully ride this baby back down. So here is the put, this one at 100%:

NES Dec 2014 10.000 put (NES141220P00010000)

 -OPR  Watchlist

0.50  0.50(55.56%) 2:29PM EST

Prev Close:	0.90
Open:	0.40
Bid:	0.40
Ask:	0.50
Strike:	10.00
Expire Date:	20-Dec-14

Day's Range:	0.25 - 0.50
Contract Range:	N/A - N/A
Volume:	382
Open Interest:	548

And here is the call, this one at 10% of the amount that I put down on the put:

NES Dec 2014 10.000 call (NES141220C00010000)

 -OPR  Watchlist

1.45  0.60(100.00%) 2:21PM EST

Prev Close:	0.60
Open:	1.20
Bid:	1.25
Ask:	1.60
Strike:	10.00
Expire Date:	20-Dec-14

Day's Range:	1.20 - 2.60
Contract Range:	N/A - N/A
Volume:	379
Open Interest:	1,445

Hopefully this pans out. The stock has already announced more than two weeks ago along with a issued downgrade so that shouldn't be a factor, this is just solely based on the news and technicals.

Keep the faith and trade on,

Mark