Dykstra: More Fuel for These Calls

The price of oil and natural gas is once again on the move, prompted most recently by international tensions after Iran captured 15 British troops in the waters between Iran and Iraq.

Because we haven't yet found a completely viable alternative to fossil fuels, the demand for oil and natural gas remains incredibly high and supply tight. As a result, this is a great time to invest in energy exploration companies, and a great name is Chesapeake Energy(CHK - Cramer's Take - Stockpickr), which closed Thursday at $31.06.

Chesapeake Energy reported fourth-quarter net income on Feb. 22 of $445.5 million, or 96 cents per share, compared with $431.8 million, or $1.11 per share, a year earlier (outstanding shares rose year over year).

After declining for much of late 2006, Chesapeake Energy has been regaining ground along with the price of oil. The company recently broke above its 200-day moving average and should continue to rise. In addition, an important insider is placing bets on his company; that is always a good sign. CEO Aubrey McClendon purchased 200,000 shares at an average price of $30.62 on March 22 and 23, increasing his holdings to about 27.229 million shares, or about a 5.9% stake.

McClendon also holds options for about 500,000 shares; 50,000 shares of Chesapeake Energy's 5.0% convertible preferred stock (Series 2003), which is convertible into 304,810 shares; and 10,000 shares of Chesapeake Energy's 4.125% convertible preferred stock, which is convertible into 600,550 shares. Including the options and convertible shares, McClendon owns a little more than 28.634 million shares, or about a 6.24% stake.

The energy sector has performed particularly well for my deep-in-the-money call strategy, with both Halliburton(HAL - Cramer's Take - Stockpickr) and Peabody Energy(BTU - Cramer's Take - Stockpickr) reaching their strike prices for quick $1,000 gains. In order to continue capitalizing on the resurgence in energy prices, I will buy 10 contracts of the Chesapeake October 25s (CHKJE) in-the-money calls at a limit order of $6.90.

I am not alone in Chesapeake; other funds benefiting from this company include Olstein All Cap Value Fund, run by Robert Olstein, and The Cutler Fund CALEX, which has a three-year return of 78%.

Now let's get to the email.