Buy Alert: July 16, 2014

| July 16, 2014

Buy Alert: July 16, 2014

 

Option Strategy:

Buy Southwestern Energy (SWN) September 19, 2014 $43.00 calls for $1.95 or better.

 

Commodity Outlook: Natural Gas

The past few weeks have been ugly for natural gas. The gaseous commodity has sunk to multi-month lows near $4 mmBtu thanks to strong storage injections and relatively cool US weather.

But there’s likely a bounce coming to this market soon…

You see, total US gas inventories are still far below normal levels. According to the EIA, current storage levels are at 2,022 bcf.

That’s 24% below last year and 27% below the 5-year average.

So even though the injection season is going remarkably well, natural gas inventories are still going to fall short of the 3.8 bcf level investors are accustomed to seeing come Fall.

As a result, now’s a good time to buy natural gas and the companies producing it.

Here’s how we’re going to do it…

 

Resource Company: Southwestern Energy (SWN)

SWN is the fourth largest producer on natural gas in the US.   The Houston, TX based company has operations in the Marcellus Shale, Denver Julesburg Basin, Fayetteville Shale, and Arkoma Basin.

But more importantly, SWN is one of the lowest cost producers of natural gas in the US. In fact, lifting costs are just shy of $1 per Mcfe of production.

Without question, SWN is an extremely efficient producer. And when you’re looking for bullish trades in the natural gas production industry, you should always look to the lowest cost producers first.

So here’s what we’ll do…

Purchase the SWN September 19, 2014 $43.00 calls for $1.95 or better.

The current bid/ask spread for this contract is $1.64/$1.83.

Do not pay more than $1.95 per contract!

Our official entry price for performance tracking is $1.83. Your price may be higher or lower.

Exit Strategy:

Southwestern Energy

Remember, we want SWN to trade higher. Our first profit target is $46.00, while our second is $47.50. Given the strong odds of a price rebound in natural gas in coming months, SWN has a very good chance of reaching our first profit target.

If the commodity jumps above $5 due to winter shortage fears, SWN will likely surge to our second target.

The risk control price for this trade is $40.85. If SWN trades below that level, conservative investors should consider closing this trade to conserve capital.

 

Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.
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