Chesapeake Energy (NYSE: CHK) shares are trading higher after CHK reported a first-quarter loss of $132 million, or 29 cents per share, last night. However, CHK shares are rising today, as the company's adjusted profit came to $561 million, or $1.09 per share, beating analyst estimates of 93 cents per share. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CHK.After hitting a one-year low of $31.38 in August, the stock hit a one-year high of $55.00 last week. CHK opened this morning at $51.82. So far today the stock has hit a low of $50.70 and a high of $52.82. As of 12:35, CHK is trading at $52.67, up $1.73 (3.4%). The chart for CHK looks bullish and steady, while S&P gives the stock a bullish 4 Stars (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $45 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just seven weeks as long as CHK is above $45 at June expiration. Chesapeake would have to fall by more than 33% before we would start to lose money. Learn more about this type of trade here.
CHK hasn't been below $45 by more than a few cents since February, and has shown support around $50 recently. This trade could be risky if the price of oil and other energy commodities drops off in the coming months, but even if that happens, this trade could be protected by support CHK might find at its 50 day moving average, which is currently around $42.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in CHK.
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