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Call Volume Spikes on Chesapeake Energy Corporation (CHK)

Were yesterday's CHK call players bulls, or skeptics in disguise?

by 12/19/2013 10:30 AM
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Option Brief: Chesapeake Energy Corporation (NYSE:CHK) was on the bullish trading radar yesterday, as roughly 11,000 calls switched hands throughout the course of the session. This was a 41% mark-up over the equity's average daily call volume, and more than double the number of puts exchanged.

Stealing the spotlight was the January 2014 28-strike call, where 3,828 contracts crossed the tape -- the majority of them at the ask price, pointing to buyer-fueled volume. Meanwhile, open interest increased at this strike overnight, signaling the addition of new long positions. In other words, the traders bet that CHK will muscle north of the strike price by the close on Jan. 17, when these soon-to-be front-month options expire.

Since short interest currently makes up 10% of the security's float, it's also possible that some of yesterday's out-of-the-money call buyers were actually short sellers looking to hedge their bearish bets. Still, CHK hasn't surmounted the $28 mark on a daily closing basis since Nov. 5 -- the day before CEO Doug Lawler warned of a drop in oil production for the current quarter, which sent the shares 6.8% lower in a single session. In either case, if the stock stays below the strike price between now and January options expiration, the speculators will simply forfeit the initial cash outlay for their long calls.

Technically speaking, Chesapeake Energy Corporation (NYSE:CHK) sports a year-to-date gain of almost 62% to trade at $26.92, and has outpaced the broader S&P 500 Index (SPX) by north of 35 percentage points during the same time frame. However, the shares have been churning sideways in the $26-$27 range since late November, so it might take a notable catalyst to break CHK out of this holding pattern.


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