Buy Alert: May 29, 2014

| May 29, 2014

Buy Alert: May 29, 2014


Option Strategy:

Buy Halcon Resources (HK) October 17, 2014 $7.00 Calls for $0.60 or better.


Commodity Outlook: Crude Oil

This morning’s EIA oil inventory report revealed a build of 1.7 million barrels. While the news is slightly bearish, the oil market isn’t treating it as such. In fact, WTI is up nearly $0.80 a barrel as I write.

The market reaction tells me something…

The downside in WTI is likely limited due to the pending arrival of the summer driving season. US inventories are still very high, but investors are expecting big drawdowns soon.

Barring some unforeseen economic calamity this summer, there’s a very good chance we see oil at $110 within the next few months.

Here’s an oil company that will benefit greatly from such a situation…


Resource Company: Halcon Resources (HK)

HK is a US based oil and gas producer with exposure to the Eagle Ford Shale of Texas, Williston Basin of North Dakota, and the Tuscaloosa Marine Shale (TMS) of Louisiana.

As you may remember from our spectacular trade in Goodrich Petroleum (GDP) a few weeks ago, the TMS is an up and coming resource play. GDP announced hefty initial well results in the TMS, which sent the company’s shares (and our calls) soaring.

HK is in a similar position as GDP…

HK holds just over 300,000 net acres in the TMS and plans on drilling 10-12 wells in the play in 2014. If HK wells perform as well as GDPs, I suspect we’ll see a similar market reaction!

And that’s not all…

In spite of the fact that HK is just getting started in the TMS, the company has strong (and quickly growing) production in its other two oil plays- the Bakken and Eagle Ford.

So here’s what we’ll do…

Let’s buy the HK October 17, 2014 $7.00 Calls for $0.60 or better.

The current bid/ask spread for this contract is $0.45/$0.55.

Pay no more than $0.60 per contract!

Our official entry price for performance tracking is $0.55. Your price may be higher or lower.

Exit Strategy:

Halcon Resources

Remember, we want HK to trade higher. Our first profit target is $7.50.  If HK hits a strong well in the TMS, we could easily see shares surge to our second profit target at $10.

And keep this in mind…

HK is currently shopping a joint venture deal in the TMS. If the company gets a strong drilling partner, shares will likely surge on this news as well.

The risk control price is $5.45. If HK falls below that level, conservative investors should consider closing this trade to conserve capital.


Category: Commodity Trading