The previous weekend’s worry about a crash last Monday proved to be incorrect as the market had some early-week struggles, but those were, at least in the short term, washed away on Wednesday as the indexes exploded higher. By week’s end, the S&P 500 had rallied 5.7%, the Dow had gained 5%, and the Nasdaq had rebounded by 7.3%.
The Stock – Comstock Resources (CRK)
Comstock Resources is a natural gas-heavy explorer that does a good business mostly in the Haynesville/Bossier shale plays in Texas and Louisiana, with north of 800,000 net acres. Like all of its peers, it went through the wringer last year, as gas prices were the lowest they’ve been in decades outside of the pandemic, which crunched cash flow and crimped exploration activity.
But Comstock’s cost structure is about half that of the peer average (it expects further declines in costs per well this year, too), which allowed it to come through in good shape, and with fundamental positives for natural gas in place—namely higher AI-related electricity demand, as well as a predicted boom in LNG exports—prices should remain well off the low areas from the past two years.
Indeed, the firm anticipates production to be flat-ish in 2025, though it recently upped its plans to operate seven rigs (instead of five) this year due to a better environment; even with that higher CapEx, the drilling program should be fully funded, with excess cash flow likely used to cut debt (though, after suspending their dividend last year, payouts could be back on the table, too).
All in all, Comstock was free cash flow negative last year due to the downtimes, but the cost structure in place here means much of the higher realized pricing should fall right to the bottom line starting in Q1. It’s not changing the world, but Comstock is one of the most leveraged players to higher natural gas prices, which is likely to be a good thing in 2025. Earnings are due May 1.
Technical Analysis
CRK went up for most of 2022, then topped out and fell into early 2024 before a prolonged bottoming effort over the next few months. Shares finally broke free from a great-looking consolidation in early November and raced as high as 22 in January, and while shares have stalled out since then, the sideways action has been resilient compared to the market, and last week’s snapback from a bout of distribution is a good sign. Stop – 17.5
The Covered Call Trade
Buy Comstock Resources (CRK) Stock at 19, Sell to Open May 19 Strike Calls (exp. 5/16) for $1.40, or a Net Price of 17.60 or less
Static Return: $140 per covered call (7.95%)
Breakeven: 17.60
Covered Call Return (if assigned): $140 per covered call (7.95%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the approximate Net Price, or 17.60 or less. (In this case, 19 minus 1.40 = 17.60. Or another example is you could pay 19.20 for the stock and sell the call for 1.60, which also equals 17.60.)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Royalty Pharma (RPRX) | 34 | 32 | 29 | April 35 - $0.75 | $0.10 |
| Exelixis (EXEL) | 38.25 | 36 | 32.5 | April 39 -- $2.20 | $0.10 |
| Uber (UBER) | 72 | 73 | 66 | April 70 -- $5.40 | $3.00 |
| Rubrik (RBRK) | 70 | 61 | 57 | April 70 -- $4.60 | $0.10 |
| AngloGold Ashanti (AU) | 35.75 | 43 | 30 | May 36 -- $2.10 | $7.50 |
| Southwest Airlines (LUV) | 32.5 | 26 | 29.5 | April 33 - $0.80 | $0.10 |
| Monster Beverage (MNST) | 57 | 59 | 51 | May 57.5 -- $2.65 | $3.00 |
The next Cabot Profit Booster issue will be published on April 22, 2025.
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