I’ve been reluctant to do any heavy trading since the great collapse of 2009 but that all changed since two nights ago.   I went out to dinner with a co-worker at a nice steak restaurant and I was completely shocked to see the restaurant packed on a Tuesday night.   I’ve eaten at this restaurant off and on over the years and it rarely had heavy business on Tuesday but that night was different.    Is it possible these were a bunch of late Valentine Day dinners?  Maybe but most of the people in there were business men and they were all talking business.

So I’ve already took a gander at the energy situation in a previous post and was again surprised to see energy inflation priced in at about 10% per year for the next two years.   A bit more investigating and I got a comfort level to start trading a bit more heavily into energy and went long on energy while simultaneously shorting to rake in some cash yesterday.    Last night I read this article on the possible consolidation and M&A activity in the energy sector which peaked my interest and confirmed my suspicions that energy is going to be “in play” over the next couple of years.

Analysts point to a wide range of companies that are potentially on the market, including EOG Resources, Southwestern Energy, PetroHawk Energy, the Encana Corporation, Chesapeake Energy, Devon Energy and Anadarko Petroleum.

“There will be a shakeout there. It will be eat, or be eaten,” said James Bogues, who leads Accenture’s North America energy mergers and acquisition unit. “Given Exxon’s reputation as a very deliberate, cautious company, the fact they made such a bold move with XTO will no doubt inspire others that a price has been set for shale gas assets and technology.”

I took a look at SWN and was pleasantly surprised to see January 2011 in-the-money options priced in at 16% which means you can earn a 16% return by buying long and selling the $45 call for January 2011.   If the stock drops you’ve pocketed 16% return in a year and if the stock rises you’ve pocketed 16% in a year!    I may buy a couple of hundred shares of SWN and sell the January $45 strikes (in-the-money) to pocket that premium.