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Tickers in this article: KOG

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David: Kodiak Oil & Gas (KOG) is an oil and natural gas exploration and production company with operations focused in the Williston and Green River basins.

KOG exhibits industry leading growth and is expected to grow its earnings over 300% this year. As such, the stock commands a premium multiple, but we feel this is justified given its outsized growth. In addition, the company pre-announced solid fourth quarter production earlier in January and is expected to deliver its final quarterly results in the end of February.

With the shares down 17% from their 52-week highs, and energy prices which we expect to remain stable in the near term, we believe the stock can trade back to the double digits if management continues to execute.

Mark: At the same time, the option vol has been completely smoked today. The options are trading at 104-week low! While I think IV COULD drop more, a further decline is unlikely. The stock has been stuck in a holding pattern and is more likely than not to break out higher in the next few days. We are going to go long KOG calls, with a June duration (the cheapest options on the board). Once it rallies and we get a little more IV in it we might convert this into a diagonal or a call spread.

Trade: Buy to open 1 KOG June 9 calls for $0.90.

To get more of David's picks, CHECK OUT STOCKS UNDER $10 for 14 days.

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