So this stock is quite volatile and is obviously a risky asset. However, the potential for returns is clearly there. A good way to play this stock is to buy a straddle option.
The one good thing about a stock like this is that the options have a very low premium. You can buy a June 2014 1$ call for about 80 cents.
What I did was buy 10 January 2014 2$ calls and 10 January 2014 1$ puts.
The entire spread cost 43 cents. So basically if the stock recovers to 2.43 or higher or falls to .57 or below and I'll make money. If Natural gas recovers this should easily hit over 2.5. I wasn't going to buy any puts but they were only .5 cents and they seemed like a decent hedge in case of a financial disaster in the next 7 months, which isn't likely but not impossible.
Actually, I think your straddle is too wide apart to optimize profit. With KWK at $1.82 I would have bought both calls/puts at the $2 strike price. I say this because unless NG goes to $1-2, KWK will not go below $1. So buying Jan $1 put is a waste of money unless you truly believe there is a chance KWK will go BK in the next 6 months, and if so the .15 premium will help you sleep better at night. I'd feel more comfortable selling the Jan $1 put, keeping the premium, and worst case having the shares assigned to me at .85.
I think you're better off buying the Sept $2's and Sept 3's and the Dec $3's. I think KWK will be above $4 by August. Wishful thinking I know...we'll see.
Yea typically you would buy the same price put/call but the 2$ put was I believe 50 cents or so, while the 1 dollar put was actually only 7 cents. I almost only bought the call, but I figured 70 dollars for an extreme hedge was probably worth it.
If I had bought the 2$ puts with the calls then I would need the stock to hit low 3's to get a good return, with the cheaper put I only need it to get to low 2's to double my money.
Here's hoping for a good bullish run up to 3 dollars!
That was a horribly unconstructive post. There is a non-zero chance it will go to zero, don't kid yourself. I don't think it is nearly as likely as it is for this stock to recover from these levels but if you are buying stock straight up you are setting yourself up for potential huge losses.
Not only is it much safer to play options but your potential returns are much higher. If you are bullish on this stock then the smart play is to buy options.
If you put 1000 dollars into the stock if it goes up to 2.30 you will gain about 27%.
If you were to buy the January 2014 2 dollar calls instead with 1000 dollars you would have doubled your money. Which seems like a better idea to you?
So if you are as closed mindedly bullish as you seem to be then why aren't you buying options instead of stock?