Chesapeake Energy Corp (CHK) Chart
Chesapeake Energy (CHK) has seen better days, including back up at $60 where I sold two naked puts. I charted it (below) today to see where I should price some naked calls to try to cut my losses some, but was surprised with the action I decided to take. The way I chart CHK’s stock, the downside is relatively limited compared to the upside. The key word here is “relatively”.
CHK is hitting a possible trend line. What was the trend line of higher highs before it broke out at the beginning of this year, could offer a support range. The 50 week moving average happens to coincide with that same price point giving extra support. If the 18 month trend line of higher lows ends up being the support line, CHK could go as low as 40 or so. That’s just above the 100 week moving average as another coincidence. With my two naked puts at the 60 strike I could lose another $2000 in the fall to $40, but I’ve decided not to sell naked calls since CHK could rally back to the $60+ range just as easily, especially if a hurricane hits the Gulf and natural gas prices soar.
Trading around $49 as I write this, CHK could move $10 in the blink of an eye in either direction. With a slightly longer time horizon, I see the upside as a greater possibility. This is not for the weak of heart by any measure. CHK is about as volatile as they come. I’m up for the risk and just placed a limit order to sell new naked puts at the September 40 strike if CHK heads much closer to it. Hopefully that order won’t hit and CHK will head north instead. My naked puts are so deep in the money that I’ll make $2 for every $1 CHK goes up. Williams %R is dipping into the oversold range and once it comes out of that CHK could be off to the races again.
Comment by kadena
I often scroll back to catch other reader’s comments, but never saw the ‘comments off’ status. That seems new, why was it necessary, if you may reveal that?
Today, I read an email from my tax preparer, over 5K back from federal coming and 700 state. However, i expect the bill to be close to 1,000 again, so total back about $5,000. My emotions are a little strung out right now. I hated seeing your positions pulled back the 7 K that it was. And, just as i have new money coming in, and re-thinking selling a vehicle for more cash, i am worried about how i play it. I now own 600 Ford shares, under 6 dollars, and wrote a 6 dollar strike for Sept covered calls. I won’t buy more of Ford. I will diversify and buy other companies. Also, i’m trading options. I have a put and a call on the Diamonds since only Friday, and want to close them early next week, they are August strikes. Want to try strikes in different months.
As always, thanks for sharing, and good luck. Please be conservative the rest of this crazy summer. The market doesn’t deserve your money. Will you write calls on your stocks?? thanks.
Comment by Alex Fotopoulos
Sometimes I turn off comments if I’ve gotten too much comment spam on a particular message. I don’t want to add too many spam blockers for extra steps to comment for the legit readers, so just on aging posts do I turn off the ability to post comments. It also brings attention closer to current for anyone adding to the discussion.
I’m glad you are diversifying. You’ll do better over time this way I believe. Thanks for continuing to read.
Comment by Zach
I share your sentiments with CHK – both expecting the stock to trade higher, and realizing that this situation is dynamic and has plenty of risk.
One of the great things about our markets is that investors can basically be paid to take risk. That is the assumption behind the decision to sell puts. Put buyers are essentially paying you (and me as I am involved as well) to take the risk off their hands. I currently think that the put premium sets up a situation where we are being paid WELL to take that risk but it is risk nonetheless.
Hope you have a profitable week!
Zach
Comment by Alex Fotopoulos
Thanks Zach. Good luck for you to have a profitable week too. Part of the beauty of selling puts is that we can assume the risk for a short period of time, but can still profit on the stock even if we lose on the option, like I did with FCX.