CHK - $18.49 Chesapeake Energy ** No Stop **
We were triggered at $19 on Friday morning when CHK fell below its 100-day average. The two days of drops pushed CHK close to the 200-day average at $17.50. CHK has not violated the 200 since July 2002. I added an insurance put given the recent instability in oil prices. Hopefully we will not need it but we got a good price on the LEAP and I consider it money well spent.
Chesapeake Energy derives 90% of its revenues from natural gas. They are very aggressive about replacing reserves and will capitalize on the continued increase in prices. Gas prices have soared in the U.S. due to the addition and conversion of electric plants to the cleaner fuel. Several times over the last winter the gas levels supplying those plants dipped to dangerous levels. The demand is increasing faster than supply and the production peak is now estimated to be 2007. Prices are going to continue higher, much higher and Chesapeake is positioned to benefit.
This summer much of northern California will get its electricity from gas due to a drought in the northwestern hydro-electric grid. Generation levels will be below normal and natural gas is the fall back power.
2007 $20 LEAP Call VEC-AD @ $4.00
Insurance put: July $17.50 CHK-SW @ 90 cents
Entry $19.00 (05/13)