I sold my position of Chesapeake Natural Gas (CHK) today. My orignal thesis is no longer valid, and the stock is probably fairly valued. The main fear is that the supply of natural gas will become (or already is) excessive relative to the demand for natural gas. This would move the price of natural gas lower, which would hamper producers like CHK.
Previously, I had written a call option (covered call position) that expired last Friday, and I considered writing another call. However, I view the risk of principal loss as too great and am happy to walk away with a profit. Further, since I held this position for a year, this gain is taxed at a long term capital gains rate.
Having sold CHK, I still desire a broad exposure to commodities. Even though commodities have risen, and are likely to pull back, I purchased the Deutsche Bank Commodity Index (DBC), 50 shares at $24.50. This purchase uses less than half of my funds from CHK, and I intend to increase my allocation to commodities on price weakness.
Taking the two trades together, I am now less exposed to natural gas and more broadly exposed to commodities. I have less money on the table and am in position to increase my stake on price weakness.
Here is my history for CHK. As you can see, I stumbled out of the gate on this, but catching the bottom and writing two covered call positions turned out to be great tactical manuevers.
|5/4/2009||CHK||write call July $25||1||1.1||101.74|
|9/10/2009||CHK||write call Jan $28||1||1.5||141.74|