Swing Ideas for an uneasy market: Antero Resources

The last few days have upended the normal markets operations and created extreme risk and dare we say some good opportunities. We begin a new series looking at some swing opportunities every week

Antero Resources Corporation is an independent explorer, primarily engaged in the acquisition and development of natural gas, natural gas liquids and oil resources in the Appalachian Basin. It is one of the fast-growing natural gas producers in the United States. The company focuses on unconventional reservoirs. It holds oil and gas properties in Appalachian Basin of in West Virginia and Ohio.

For Q4 2022, AR beat on Revenue ( 2.09B vs 1.52 Estimate) and EPS (1.04 Vs 0.89)

Technical analysis of AR:

The chart below is the weekly chart of AR. The horizontal line at 22.76 is 2018 level high. I have taken a fibonacci retracement from 1/24/2022 low to the high in June of 2022, we have reached the 78.6% retracement. This means it has retraced almost the entire pump it received due to the start of the war.

The chart below is the daily chart. 3/15/2023 we had a doji candle outside of the Bollinger Band and the next day it has had a bullish candle.

AR went from 16 price level to almost 50 price from Jan 2022 to June 2022. It followed Natural gas from Jan 2022 to June 2022 almost to the tee. Both Natural gas and AR are at almost at their lows.

Natural gas futures as of now looks like has put in a bottom for now. Natural gas is known as widow-maker. But AR is a stock with good numbers. And based on the technicals and how it has usually followed Natural gas, I am expecting if nothing else at least an oversold bounce.

Hence I am looking at selling a put in AR and use that premium to buy a call.

The way I have engineered this trade is to sell near dated puts where I have decent implied volatility and buy July calls where the volatility is lower.

The implied volatility for March 31 expiration is 67% and the July expiration has an IV of 57%

So, the plan is to sell 22strike puts for a $1 credit for the March 31 expiration. And to do a call debit spread on AR for July 21st expiration 24/27 call debit spread for a $1 debit.

So I am getting a $1 and I am spending a $1 for the trade.

So I am doing a free trade. Does anything like a free trade exist? What are the risks?

My plan is to sell 22 strike puts for March 31st expiration. If AR closes below 22 price level on March 31st then I will put the stock.

This means that I will be assigned 100 shares of stock. I am fine with this risk. Hence I am willing to sell the 22 strike put.

If AR goes up and closes over 22 price level on March 31st then I get to keep the $1 credit I received. Now the call debit spread that I have bought for July expiration is truly free.

If by July AR does not go over 24 price then I will lose on the 24/27 call debit spread. But I paid nothing for it.

Now after March 31st, I can sell again a put to have some more cash flow on this name while waiting for the call debit spread to become profitable.

So, technically, I can sell every 2-3 weeks a put in AR stock always being aware that if the stock closes ITM (In The Money) on expiration, I can be assigned the stock.

As long as I am fine with holding the stock and know how to manage this trade, it is a great way to make cash flow while waiting for the bullish trade to work.

As always you need to do your own analysis before you commit you capital to trades.

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