Buy Alert: November 20, 2014

| November 20, 2014

Buy Alert: November 20, 2014


Option Strategy:

Buy Chesapeake Energy (CHK) January 16, 2015 $24.00 calls for $1.35 or better.


Commodity Outlook: Natural Gas

This morning’s EIA natural gas report revealed the first inventory draw of the heating season. Inventories for the week of November 14th came in at 3,594 bcf, which is 17 bcf lower than the previous week.

Clearly, the ongoing outbreak of cold US weather is having an effect on storage levels. With consumer cranking up the heat, natural gas demand is exploding.

And listen to this…

Meteorologists are now expecting colder than normal temperatures for at least the next 8-14 days. What’s more, given the pattern that’s developing, it’s growing more likely we see a colder than normal winter- just like the Farmers Almanac predicted a few months ago!

Of course, all this news is great for natural gas producers. With the commodity over $4, internal rates of return grow very nicely.

As you know, we’re already long UPL calls from a few days ago. Today we’re adding another high potential natural gas producer to the portfolio.

Here it is…


Resource Company: Chesapeake Energy (CHK)

CHK is the second largest producer of natural gas in the country. The company has extensive operations in the Marcellus/Utica shale where lifting costs are extremely low relative to other natural gas producing regions.

Shares of the natural gas producer have been in rally mode ever since they announced an asset sale to Southwestern Energy (SWN) in mid-October.

With natural gas pricing strong, investors will likely keep pushing CHK to higher prices in coming months.

So here’s what we’ll do…

Buy the CHK January 16, 2015 $24.00 calls for $1.35 or better.

The current bid/ask spread for this contract is $1.19/$1.23

Do not pay more than $1.35 per contract!

Our official entry price for performance tracking is $1.23. Your price may be higher or lower.

Exit Strategy:

Chesapeake Energy

Remember, we want CHK to trade higher. Our first profit target is $26.00, while our second target is at $27.00.

The risk control price for this trade is $21.80. If CHK trades below that level, conservative investors should consider closing this trade to preserve capital.


Category: Commodity Trading