The nation’s refining industry is taking a nosedive today thanks to a report from Valero. The markets are reacting like all refiners are going down in flames. It is not the case by any means. Take advantage of the mistake.

It is not every day we see a $10 billion company like Valero Energy (NYSE:VLO) shed 20% of its value. When it happens, it is certainly action worth investigating.

The sudden decline comes thanks to the company’s executives estimating a fifty-cent per share Q2 loss, versus $0.59 per share earlier estimates and $0.74 per share consensus projections. The jaw-dropping news sent shares of competing refiners into the dumpster as well.

Frontier Oil (NYSE:FTO) is down over 15%. CVR Energy (NYSE:CVI) is down over 17%. And Suncor (NYSE:SU) is down by 8%.

The more a company’s profits rely on refining revenues, the deeper the decline.

The day’s action has created opportunities for options investors.

Sure, things are bad at Valero, at least in the short run. But its competitors do not face such a bleak outlook.

The market makes mistakes

Valero claims its Q2 loss will be due, in part, to its temporary shutdown at its Delaware City facility as well as unfavorable margins, especially in the diesel market. There is no doubt volatile crude prices over the last six months have made managing the business extremely difficult. Margins have been anything but predictable.

Refiners must walk a thin line to reach maximum profitability. Much of their fate relies in the hands of energy traders. Creating and sustaining maximum margins takes incredible financial diligence and hedging. Get one calculation wrong and, well, just look at Valero.

But as I said, Valero’s problems are not systemic. The industry as a whole should not have dropped by such large levels today.

For options investors, it spells an opportunity to buy short-term calls. Front-month calls carry the most reward, but are the most risky.

CVR Energy’s June 7.50 calls are worth looking at. And Suncor’s June 33.00 calls are worth your time.

The best profits will come if the markets make a significant rebound off of today’s depressing action. Even if the next several weeks offer moderately bullish action, the profit potential is eye-opening.

Big, industry-wide moves like we saw today are what options investors depend on for triple-digit gains. The market does not make such big mistakes often, but when it does the profits can be spectacular.

Source: Take Advantage from the Refining Industry Fallout