Jim Cramer said in a February 19 edition of CNBC’s Mad Money he thinks Devon Energy (DVN) has become the best way to play natural gas. The company’s shares were trading at $71 at the time of Cramer’s insight.
When Cramer sends out comments like this, investors who use options can try many different strategies, as opposed to just buying or selling the shares outright. Here’s an example of some ways that options investors might follow or rebel against Cramer’s opinion. These are not buy-sell-hold recommendations – just some potential strategies that fall into the bullish or bearish camps.
Those who agree with Cramer and expect upside (or at least limited downside) in DVN might be trying to buy call spreads by buying the April 60/70 call spread. This spread is currently trading near $7.60, and that debit plus commissions is the maximum risk to this strategy, while the maximum reward is $2.40 minus commissions. This spread will be profitable if DVN shares are trading above $67.60 at April expiration.
On the flip side, investors who don’t agree with Cramer’s bullishness could be buying put butterflies. Investors could do this if, for example, they buy July 80/65 put spreads for $9 each, and simultaneously sell the July 65/60 put spread for $1.50. The net debit, or maximum they could lose, would be $7.50 plus any applicable broker commissions. In the unlikely event the stock is trading right at 65 at July expiration, the maximum profit would be $7.50 per spread. The put butterfly will be profitable if DVN shares are trading lower than $72.50 at July expiration.
Options give investors options, and these are just two of the many strategies you could potentially employ to reflect your particular investment opinion.
Cramer boldly proclaimed his opinion on DVN, so what’s your take; bullish or bearish?
Photo Credit: Dobrych
No related posts.
Tags: DVN, Jim Cramer
I tend to agree…does anyone listen to Cramer? Just curious, I have never watched him.