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Today's bears are showing no mercy for Chesapeake Energy Corporation (NYSE:CHK), gobbling up roughly 22,000 puts -- more than two times the intraday norm -- so far. (By contrast, fewer than 8,500 calls have changed hands.) Seeing most of this activity is CHK's September 20 strike, where 17,500 puts, including a block of 14,335 contracts, have crossed for a volume-weighted average price (VWAP) of $1.19. The majority of the contracts went off at the ask price, implied volatility has increased, and volume exceeds open interest, all pointing to buy-to-open activity.

By purchasing these out-of-the-money puts, today's bearish bettors anticipate CHK will shave off at least 8.2% from its current perch of $20.50 to finish south of the breakeven price of $18.81 (strike price minus the VWAP) by the close on Sept. 19, when the option expires. If, instead, the stock continues to hover above the 20 strike, the put buyers will lose (at most) the initial premium paid.

On the charts, CHK has grown 23.6% year-to-date. However, within the past month, the stock has reversed its trek, slumping more than 5% and trailing the broader S&P 500 Index (SPX) by 6.7 percentage points. Still -- today's put buying notwithstanding -- options speculators have bought to open 136 CHK calls for every 100 puts within this time frame, according to the stock's International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 20-day call/put volume ratio of 1.36.

At the same time, short interest accounts for 12.5% of CHK's available float, meaning a high number of the stock's traders are pessimistic. Therefore, it is possible that recent call activity is heavy due to short sellers hedging their bearish bets.


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