Watching BP: Turnaround Play?

Jun.27.10 | About: BP p.l.c. (BP)

Like everybody else, I've been watching BP, as well as the events in the Gulf. While not holding BP (nor have I, in the past), the events unfolding have broader ramifications for the oil/gas industry, generally speaking.

Additionally, I've been keeping an eye on BP, watching to see what sort of opportunities might unfold, either from a short term trade perspective or a longer term viewpoint. Early on, I thought there might be a chance for a short term trade on the long side, somewhat similar to a trade I did with TM back in the early days of the unintended acceleration incidents.

While there were some small bounces in BP's price from time to time, the downside risk seemed to me, at least, to greatly outweigh any profit potential that might have existed. Since then, I've shifted my perspective, and have started looking at BP from a longer term perspective as a turn-around, or special situation play.

The problem for me is still the risk reward ratio. For those with a longer time horizon, as well as a surfeit of cash, it seems to me that the best way to play it would be:

  1. Allocate a relatively small portion of one's portfolio to the position. I wouldn't be swinging for the fences on this one.
  2. Start scaling into the position, as I think that the bottom's not yet in, although I couldn't begin to speculate as to where it ultimately might be.

For myself, I think that there are better places to allocate funds, if one is adding/initiating to the energy portion of a portfolio.

Disclosure: Author holds long positions in STO, PVX