I reiterated my buy call, but that wasn't the only reason for discussing Halcon with Jim. The case of Halcon holds a few good lessons about investing in very speculative stocks.
First, the fundamental reason for the decline: Halcon reported the initial production profile for two major wells it is drilling in the Utica basin and they were a disappointment, with one returning 730 barrels of oil equivalent a day and the other yielding 1,652 Boe/d. Expectations were for one of these wells to yield closer to 2,000 Boe/d, although another well in the Southwestern Marcellus shale play had a more adequate result.
While the report was disappointing it was hardly disastrous and yet the stock cratered, dropping more than 50 cents a share last Thursday. This is the first takeaway from trading speculative stocks: There is a natural overreaction to bad news in the share price (as there is often an equally overdone reaction to good news when there is some).
I have bought more shares at the now-lower price and remain convinced that Halcon is an interesting investment but I have hardly bet the farm on it; that is the second takeaway from trading speculative stocks -- only invest as much as you are willing to lose.
I talk more about Halcon with Jim in the video above.
At the time of publication the author had a position in HK.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 25 years of oil trading experience. He is a licensed commodities trade adviser.
Dan is currently President of
a wealth management firm and is the author of
published in March of 2011 by John Wiley and Sons.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts on
US and UK and
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.