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I am a graduate of Thiel College with a Bachelors in Business Administration, double minor in Finance and Economics, Masters degree at Harvard University.
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The Covered Call
  • GDP Sweet Spot 0 comments
    Dec 6, 2013 2:41 PM

    Goodrich Petroleum Corp. ( GDP )
    The Sweet Spot


    Goodrich Petroleum Corporation GDP, an independent oil and natural gas company, engages in the exploration, development, and production of oil and natural gas. The company holds interest in the Eagle Ford Shale Trend located in South Texas; the Haynesville Shale and Cotton Valley Taylor Sand in northwest Louisiana and East Texas; and the Tuscaloosa Marine Shale located in southwest Mississippi and southeast Louisiana. It owns working interests in 392 producing oil and natural gas wells located in 32 fields in 8 states. As of December 31, 2012, the company had estimated proved reserves of approximately 254.0 billion cubic feet of natural gas, 5.1 million barrels of crude oil or other liquid hydrocarbons (MMBbls) of natural gas liquids, and 8.1 MMBbls of oil and condensate. Goodrich Petroleum Corporation was founded in 1995 and is based in Houston, Texas.

    Investment Thesis

    GDP has a current Value of $2.07 per share. Therefore, it is overvalued compared to its Price of $19.59 per share. Value is computed from forecasted earnings per share, forecasted earnings growth, profitability, interest. The stock is currently trading within a $.46 range of the 100 & 200 day EMA. If the 200 day EMA can cross over the 100 day it will indicate a bullish trend has started. The stock has options interest in the thousands which is important for liquidity, and with that mentioned, the $20 calls have massive interest at 11,697 contracts. These long calls lock in the price where traders can buy the stock through mid-January no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below $20. GDP rose 3.58 percent yesterday to close at $19.36. The oil and natural-gas company broke out of a multi-month range in late July and ran up to $28.55 in October--its highest price since late 2009--but has been declining steadily since.


    I recommend the December $20 calls at $.90. But because of the pull back, and the possible drop in price, I recommend building a Straddle. I would recommend buying the January $20 calls @ $1.66 and the January $20 Put @ $2.05. This play will be a debit cost ($3.71) but it will protect you. If the stock breaks down your support levels for the put would be $16.00 and the final support and base at $12.04, netting you $4, & possibly $7.96 profit. This would allow you to sell the call if you need to, but I would recommend holding on to it. If the stock stabilizes at $16, you may able to add to the bet because of the January expiration.

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    Disclosure: I am long GDP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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