Long term Energy play with great upside potential

Crude oil has been range bound from $50 to $62 over the past 2 months, and prices have seemed to stabilize in the short term. Longer term, we believe that there will be a recovery in oil prices and that we will settle in the $70-90 range. The decline on oil prices has send MLP (master limited partnerships) stocks focused on exploration and production down significantly, and we like one in particular, LINN Energy (LINE). LINN has dropped from $30 to $9 over the past year, and they pay a dividend of .10 cents per month for roughly a 13% yield. The company has a Zacks rating of #2 (Buy), and they recently restructured debt to lower their cost structure. As oil prices recover we believe there will be a direct correlation to LINN's stock price, and we are going to capture this upside through a trade in their LEAPS.

We are buying January 2017 $10 Calls on LINN for $1.10, and selling the January 2017 $8 Puts for $2.30. This trade will yield a net credit to us of $1.20 per set of calls and puts, and we will have long exposure to the stock. If the stock drops below $5.80 we will be forced to buy the stock at $8 less our credit from this trade. We have almost 18 months until expiration, and any move above $10-11 in the stock should provide a great return, however we plan to hold this for a longer period of time.