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With summer fast approaching and our portfolio looking more like an energy trust than a balanced investment I hesitate to add any new positions.

However, there was one more energy company that seems to have a compelling story ahead. I added Chesapeake Energy to the watch list with a target of $19.

I wanted to add BNI, Burlington Northern, but felt we already had too many energy plays. I am mentioning it here for those who want some more targets. BNI is making a mint off the transportation of coal. The U.S. is the Saudi Arabia of coal with Canada a close second. With the current drain on natural gas supplies coal will eventually be the number one fuel in the U.S. BNI can't order coal cars fast enough and shipment of other commodities like lumber, chemicals, ores and building supplies are also accelerating. As gasoline becomes more expensive the railroad will become the preferred transportation method for many more products. The Jan-2007 $55 calls are cheap at $6.20 and it traded over $55 as late as March. I would use a stop of $44 and no insurance put.

If you see any obvious LEAP plays that could work through the summer please email them to Jim at Option Investor and I will post them for everyone to see. Until the portfolio slims down to 10 positions or less I will be keeping a skinny watch list but continue to comment on stocks I like.
 

Dropped Entries

None


New Watch List Entries
CHK
$20.00
Chesapeake Energy

CHK - $20.00 Chesapeake Energy

** Breakdown Target $19.00 **
** Breakout Target $21.50 **

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.

Breakdown Target
BUY 2007 $20 LEAP Call VEC-AD currently $4.60

Breakout Target
Buy 2007 $22.50 LEAP Call VEC-AX currently $3.70

No insurance put - Stop at $16.00
 

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