Antero is a Gas

One of the things that those who are calling for lower oil just don’t understand is that the fracking industry is just not going to flood the market with oil. That means there won’t be this sudden influx of associated gas – gas that comes with oil production. 

How do I know this. I talk to the oil people. While there is still somewhere between 6,000 and 10,000 DUC wells – drilled but uncompleted (not fracked yet, just a hole), that is not an ocean of oil and it isn’t being tapped fast anyway. 

The fracking companies are fracking it as other wells slow on production. Because there was a gap in new wells in 2015 and 2016, and capital spending is still restrained to control costs, there is a good equilibrium going on right now. The only way the frackers unleash the fury is if oil gets to about $80 per barrel. 

So, wait for it. Oil is going to rise, maybe this year, maybe next, to $80 per barrel because OPEC, Russia and our frackers all want that. It will happen, especially with the global economy hot. 

Yes, I worry about a few years from now, but as I’ve said, despite high valuations in other parts of the market, oil and gas are fairly priced or even underpriced based on the cash flows that are coming with higher oil and gas prices. 

Natural gas has been rising due to the big inventory drawdowns due to the cold weather. If summer is hot, then we could see even more drawdowns. Extreme weather, is good for trading energy.

Antero (AR) is a favorite natural gas stock of mine because of their position serving the east coast, the new natural gas exports tightening the American market (to the point we just bought natural gas from Russia, how stupid) and as a takeover target. 

I am buying more Antero today. I am also selling cash-secured puts and buying calls for August. I am buying the August calls because there is usually a lull in pricing in the fall. I could buy more calls for August down the road.

Here are the specifics.

Buying Antero shares to 2% of portfolios.

Selling AR March $22.50 puts for about $3 in order to build position to 4%.

Buying AR August $22.50 calls with about half of the put premiums.

This writing puts and buying calls with about half the premium gives us a chance to make money multiple ways. First off, if the stock rises past $22.50 relatively quickly, we don’t get the stock, but our calls rise. Or, if we get assigned the stock, our net price is somewhere around $21-22. We should make money on the shares and we still have several months to make money on the calls.

This is a way to get leverage on a good idea without sticking our necks out too far. 

Disclosure: I am/we are long AR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have sold puts and bought calls on AR. I own a Registered Investment Advisor – https://BluemoundAssetManagement.com – however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.