Miller Energy Strikes Oil, Literally

The "action" in shares of Miller Energy Resources (MILL) has been compelling of late. The shares have risen more than 20% in the last five trading days.

Simply put, they've struck oil, and it is flowing at a much higher rate (more than 2,000 bbls/day) than the Street had anticipated. Their properties in Alaska's Cook Inlet have moved ahead of the curve and their well rebooting -- "sidetracking" --process worked wonders with the first well, has just been completed on a second well, and now is being effected on a third well.

So, I have been buying Miller Energy for client accounts, especially today, even though -- since it doesn't pay a dividend -- it's not technically a "Portfolio Guru" security. I am harvesting some income by writing out-of-the money call options, but with the stock trading @ $6.86, I've already had to buy back some $7.50 strike February 2014 calls to "re-write" $10 strike February 2014 calls.

It is possible to be too conservative, and Miller common is now in the position of "buy now, ask later." And the "I missed it" thesis isn't as valid here, since their 4Q oil production is totally based on performance of what are essentially new wells.

The key is that Miller's common shares have been so heavily shorted. With 32 days' worth of average trading volume and 35% of the float shorted as of the last reporting period (Aug. 15) this is acting as rocket fuel for Miller Energy's advance: a classic short squeeze.

At the end of the day, Miller Energy's robust oil production is disproving the shorts, but digging further, the reasons Miller Energy shares were so heavily shorted are the reasons that their financial performance is improving markedly....373 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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