Nice Try

We saw a pretty good bounce back today after yesterday's plunge. The rally was lead by financial companies - Bank of American and Citi were up 12% today but the rally didn't phase my plays.

I started this week holding on to OOCXA and bought a healthy amount of CHKXV this morning - about 20 minutes after open.

I've explained before my reasoning behind DRYS so I'll discuss my reasoning behind Chesapeake Energy. There are two major reasons for me going short:

1) Their operating cash flow is not enough to service their capital expenditures and heavy debt load. They have already begun selling assets and diluting their stock. They've registered 50 million new shares to sell, hoping to raise a total of $791.0 million - roughly $15.82 per share. The market does not expect the company to get this price and thinks CHK will have to take more drastic action - it's priced in to the stock.

1) The price of natural gas has fallen off a lot this year and inventories are rising, signaling that prices will stay low. CHK needs cash from their natural gas business and with prices this low, they won't get it.

CHK also uses derivatives to hedge against price fluctuations, they appear to be loosing big on those right now. If the company does not get a serious cash infusion they'll be close to bankruptcy.

I'm going to hold on to both of my positions for at least a couple days. If anything I'll let the DRYS puts go before the CHK puts.

-Nik

P.S. - HAHAHAHAHAHHAHAHAHAHHAHAAHAH at GM. Wagoner's ready to DRIVE to Washington D.C.? This is the same company that asked the FAA to block tracking of their company jet. Sigh...