Chesapeake Energy Corporation (NYSE: CHK) is having yet another incredibly strong start to the trading session this morning, following up on the impressive gains that we’ve seen on the stock as of late. So, what’s in store for the stock? In my opinion, there are more gains to come. Today, we’ll talk about:
- Why CHK has been headed up;
- what we’re seeing from the stock;
- why we believe big gains are just around the corner; and
- what we’ll be watching for ahead.
Why CHK Is Headed Up
The truth of the matter is that it’s not just Chesapeake Energy. Just about every company in the oil and energy sector is seeing gains in the market, and it’s happening for a very good reason. Oil has been trading at incredible lows for some time as the result of a global supply glut. However, that glut is shrinking. Efforts made by OPEC to balance oil may have taken a while, but they seem to be laying a solid foundation for growth.
Adding to the solid foundation laid by OPEC with regard to support for growth in the price of oil, the Trump Administration recently placed sanctions on Iran surrounding a nuclear weapons agreement. With these sanctions in place, Iranian oil will no longer make it to many of the world’s largest consumers of the commodity. The kicker here is that Iran is one of the world’s largest oil producers and the third largest producer in the OPEC oil cartel. As a result, the oil supply glut that is already disappearing is expected to disappear much faster. At the end of the day, CHK is a company that makes its money through oil and natural gas. As the glut dissipates and the price of oil climbs, the company stands to see increased revenue and earnings.
What We’re Seeing From The Stock
The reality is that the news moves the market, and, while Chesapeake Energy hasn’t released any news of their own, the gains in oil and news surrounding the industry are pushing the stock for the top. Of course, our partners at Trade Ideas were the first to alert us to the gains. Currently (11:31), CHK is trading at $4.84 per share after a gain of $0.23 per share (5.10%) thus far today.
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Why We Believe These Gains Will Continue
Ultimately, the reason that we believe that gains will continue has to do with supply and demand data surrounding oil. At the moment, the United States, Canada, and many of the world’s largest consumers of oil are entering summer months. These are months of travel and increased demand for oil. At the same time, we are seeing sanctions on a massive producer and continued reductions in the supply glut. Ultimately, this means that oil supply and demand is starting to find balance, and balance harbors growth in the oil industry.
We’re not the only people that see something big around the corner. In fact, May 25, 2018 $3.50 Put Options had some of the highest implied volatility of all equity options today. Implied volatility is a great indicator of something big to come. When implied volatility is high, as it is on CHK, traders believe that something big is going to happen that will send the stock either on a strong run toward the top or run toward the bottom. Considering this combined with the fundamental reasons that we believe oil will head up in value, it will be surprising not to see a big run soon.
What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on CHK. In particular, we’re interested in following the oil industry and the sanctions on Iran. Of course, movement in these stories will likely lead to movement in the stock. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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