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Dykstra's Deep-in-the-Money Call: Valero

Lenny Dykstra

When others are seeing red, I'm seeing green.

While the market has been getting beat up, there have been a lot of buying opportunities and I've had some winners cross the plate. This week Procter & Gamble(PG Quote) notched us a $1000 win, and we scored a grand with Walgreen(WAG Quote) and $4800 with Tesoro(TSO Quote) last week.

It's an important part of my strategy to average down, or lower my average entry price when a pick goes down and you can check out my recommendations for managing my picks in my newsletter.

I have a great play for you today, so let's move right into the pick. I'm going with Valero(VLO Quote). I grabbed a one-day, $1000 win with Valero a few weeks ago, and the current price puts me in great position to grab some more cash.

The company is the biggest independent oil refiner in North America. Valero refines low-cost residual oil and heavy crude into cleaner-burning, higher-margin products, including low-sulfur diesels. The company operates 17 refineries with a total production capacity of more than 3.1 million barrels per day.

The company markets its products in 44 states, as well as in Canada, Latin America and the Caribbean. It has more than 5800 retail and wholesale stores and operates under many brands including Valero and Diamond Shamrock.

Simply put, this company's stock is way too cheap! It has lost 40% of its value in the last year and 10% in the last week. It closed at $44.68 on Wednesday. That's just a buck and a half above its 52-week low of $43.06. Its ceiling during that time frame is $78.68.

Part of the decline in the last week can be attributed to a drop in gross refining margin across the industry. However, this company has a return on equity of more than 20% and nearly 80% of its stock is held by institutions, which are generally considered buy-and-hold investors.

At today's price, Valero is an absolute steal.

That's why I am placing a limit order to buy 10 January $35 calls (VHBAG), paying $10.90 or better. I will place the GTC sell order $1 higher than the fill price so I can grab a $1,000 victory as soon as it comes. So, if your order is filled at $10.90, you should immediately place a good-till-cancel (GTC) order to sell at $11.90.

Always remember: Life is a journey, enjoy the ride!