This is the second post in my three part series on natural gas in general and CNX and Diversified Energy (DEC) in particular. In part 1, I went into why I chose nat gas overall. Today, I want to talk about why I chose to look at CNX and DEC in particular, and in tomorrow’s post I’ll dive into what I was looking for in my expert calls and what I learned (update:
This is a good article and I'll recommend your blog to other Substack writers and readers.
CNX looks like an interesting commodity stock that should be traded as a commodity stock like ADM or BG. Its charts are bullish.
Short interest is around 15%. That shows sophisticated speculators are playing the commodity market, and it's one reason the stock looks under priced.
I haven't decided whether to get into CNX. If I do, and this is not advice, I might sell CNX 9.16.22 expiration $15 strike puts for an annualized return on risk of about 18%. The net debit would be about $14.75. That is a 15% or better discount (MOS Margin of Safety) on the stock. The delta would be -.16, meaning that there is about a 16% probability that the stock would be assigned at $15 if the stock fell below $15 by the end of the trading session when the puts options expire. The OTM probability is about 95%.
Traders who want a smaller discount and greater chance of buying the stock at a lower price could sell the $17 or $16 puts.
In addition to or instead of selling puts, speculators could do a CNX buy/write (B/W. Buy CNX at $17.31. Sell CNX 9.16.22 $17 covered calls for about $1.10. That would yield about a 45% ARoR. If the stock is called, the trader can sell the puts. And continue the wheel of buying and selling CNX and its options, which are lightly traded and have fairly wide bid/ask spreads.
DEC doesn't come up in StockRover.com or on Think or Swim.
This is a good article and I'll recommend your blog to other Substack writers and readers.
CNX looks like an interesting commodity stock that should be traded as a commodity stock like ADM or BG. Its charts are bullish.
Short interest is around 15%. That shows sophisticated speculators are playing the commodity market, and it's one reason the stock looks under priced.
I haven't decided whether to get into CNX. If I do, and this is not advice, I might sell CNX 9.16.22 expiration $15 strike puts for an annualized return on risk of about 18%. The net debit would be about $14.75. That is a 15% or better discount (MOS Margin of Safety) on the stock. The delta would be -.16, meaning that there is about a 16% probability that the stock would be assigned at $15 if the stock fell below $15 by the end of the trading session when the puts options expire. The OTM probability is about 95%.
Traders who want a smaller discount and greater chance of buying the stock at a lower price could sell the $17 or $16 puts.
In addition to or instead of selling puts, speculators could do a CNX buy/write (B/W. Buy CNX at $17.31. Sell CNX 9.16.22 $17 covered calls for about $1.10. That would yield about a 45% ARoR. If the stock is called, the trader can sell the puts. And continue the wheel of buying and selling CNX and its options, which are lightly traded and have fairly wide bid/ask spreads.
DEC doesn't come up in StockRover.com or on Think or Swim.
@realDonJohnson
https://djincometrader.substack.com