Frontier Oil (FTO) is Ready to Go Up on Takeover Rumor

Recurrent takeover rumors appear to be guiding the options action in Frontier Oil on last Thursday. There were trading 9 times as often to calls as to puts, consistent with the giddy action of a takeover rumor stock. This is an indicative of noteworthy action in the stocks in the near future.

FTO's refineries are built tough, with stainless steel catalytic crackers and cokers that cook the crud into gasoline, diesel, jet fuel and $30 a barrel in profit. It can refine oil from producers in western Canada which harder to be refined because it's gooey, acidic and high in sulfur. Last year FTO netted $500 million on revenue of $5 billion, giving rise to an industry-leading 49% return on capital.

For five years oil refiners have been coining money, as capacity fell just a little short of demand. Whatever the price of crude, the gasoline makers were able to tack on a fat refining spread. Frontier's profits peaked last May, when the fuels cooked out of each heavy, sour barrel at its Cheyenne, Wyo. plant sold for $75 more than the cost of the crude.

According to my technical analysis below, there are bullish reversal signals on the FTO charts such as falling wedge and support lines.



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