Introduction

The current oil and natural gas slump has decimated energy securities, some more than others, and have finally brought Chesapeake Energy (NYSE:CHK) down to a price where I am comfortable going long. I’ve said in the past that I will not be a buyer until CHK hits $4/share and now that they are trading around ~$4.60 (12/4/15), I feel it’s time to place my bet. This article will explain my strategy for initiating a full position in CHK, rather than a detailed analysis of the company’s fundamentals and outlook. However, below are the links to 4 of my favorite CHK articles If you would like to read the recent news regarding their financial health, performance, and outlook. These articles, along with my own conviction, are the reasons behind my long position. In addition to my strategy, I will also detail a second high risk/return trade that I am entering into with ProShares Ultra Bloomberg Crude Oil ETF (NYSEARCA:UCO). The articles are as follows:

General Outlook for CHK

CHK is priced for failure, due to a potential liquidity crisis in 2016 and uncertainty around their debt restructuring, which provides us with a cheap entry point. I have no doubt that CHK has some tough times ahead and are rightfully considered as a high risk security, as they fight to gain control of their balance sheet. Therefore, I believe in order for me to realize an enticing risk adjusted return on a long position, 2 things will need to happen for CHK by the end of 2016.

CHK ranks as the 2nd largest natural gas producer in the L48 with a total production mix of roughly 71% NG, 16% Oil, and 13% NGLs across their acreage in the Utica, Marcellus, Haynesville, Anadarko Basin, Barnett, Eagle Ford, and the Powder River basin. In addition to their production and sizable acreage position, Carl Icahn holds a stake in both CHK and Cheniere so it’s plausible that CHK will directly benefit from Cheniere’s export terminals as a supplier of natural gas moving forward. Since global LNG/NG demand is expected to grow in the future, making a bet on a rebound with CHK provides enticing returns. If the two conditions above are satisfied within my time frame, then I have no doubt that CHK will outperform. However, I have no idea if my 2 requirements will come to fruition so I will need to add a level of protection to my investment.