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Trade of the Day: HollyFrontier (HFC)

All refiners are rising, but this one looks ready to make new yearly highs


Recently, I mentioned investors are now fearing they may not be long enough in this market, and I said I was watching HollyFrontier (NYSE:HFC) as a good bullish candidate for those looking to increase their exposure.

Then I pulled the trigger, and went long HFC.

Today, I’m placing HollyFrontier as the Trade of the Day, as I just recommended that my Trader’s Advantage members double up their bullish position on HFC by adding call options. Traders can initiate positions in HFC stock at current levels as it has a ways to run before my $49.50 target.

HollyFrontier is  a medium-sized petroleum refiner that rose as much as 2% Tuesday before settling back to close with a 1.2% gain. The refiners are on the move as crack spreads have widened, allowing them more opportunities to profit.

The crack spread is essentially the difference between what a refiner pays for feedstock (i.e. crude oil) and what it earns for refined product (e.g. heating oil or gasoline). If crude is plentiful and refined goods are scarce, the spread widens. That is actually the case now because some major refineries along the Gulf of Mexico have been taken out of commission recently.

This has boosted the prices of all the refiners, including Valero (NYSE:VLO), Tesoro (NYSE:TSO) and Western Refining (NYSE:WNR).

But I think HFC is the strongest of the bunch, and my expectation is that ultimately HFC common will trade at a new one-year high.

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