Buy Alert: April 1, 2014

| April 1, 2014

Buy Alert: April 1, 2014

 

Option Strategy:

Buy Goodrich Petroleum (GDP) June 20, 2014 $17.50 calls for $1.45 or better.

 

Commodity Outlook: Oil

Crude is pulling back in today’s trading session thanks to rumors of Libyan crude facilities coming back online.  Three ports, which account for 600,000 bpd of exports, are said to be within weeks of reopening.  With this new supply potentially coming back onto the global market, crude bulls are stepping to the sidelines.

However…

The weakness we’re seeing today will likely be temporary.  After all, the summer driving season is a mere two months away.  As you may know, the price of WTI typically stays strong during this high demand season.

Let’s buy today’s crude weakness via a carefully selected oil and gas company…

 

Resource Company: Goodrich Petroleum (GDP)

GDP is a US based oil and gas producer with exposure to the Eagle Ford, Haynesville, and Bossier shale of Texas.  What’s more, the company also has acreage in the Tuscaloosa Marine Shale of Louisiana.

GDP reported earnings that fell short of analyst expectations in mid-February.  As a result, shares of the company fell to just under $13- a precipitous drop. 

But ever since then, things have been looking up…

Shares have rebounded to $16 in recent days thanks to the idea GDP is considerably undervalued.  In fact, the company has an outperform rating and average analyst price target of $23.00.

What’s more, there’s been a substantial amount of bullish call activity in the name over the past week.

Given the value proposition, along with large bullish option flow, GDP is a solid bet on stable to rising oil prices over the next few months.

Let’s buy the GDP June 20, 2014 $17.50 calls for $1.45 or better. 

The current bid/ask spread for this contract is $1.25/$1.35. 

Pay no more than $1.45 per contract!

Our official entry price for performance tracking is $1.35.  Your price may be higher or lower.

 

Exit Strategy:

Goodrich Petroleum

Remember, we want GDP to trade higher.  Our first profit target is the $18.00 technical resistance area.  We could see additional gains for GDP if more investors realize the value story and jump on the bullish bandwagon.  In such a scenario, GDP may jump to our second profit target of $20.00.

The risk control price is $13.00. If GDP falls below that level, conservative investors should consider closing this trade to conserve capital.

 

Category: Commodity Trading

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