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Despite Chesapeake Energy Corporation's (NYSE:CHK) modest pullback on Monday, calls emerged as the options of choice. By the numbers, 6,507 calls changed hands on the day, compared to 4,377 puts. The weekly 6/14 22.50-strike call was the most sought-after strike, where 2,047 contracts changed hands for a volume-weighted average price (VWAP) of $0.13. The majority of these calls crossed at the ask price, implied volatility jumped 4.8 percentage points, and open interest added 1,274 positions overnight, making it safe to assume that new bullish positions were initiated.
Based on the VWAP, CHK must climb north of $22.63 (strike plus VWAP) by this Friday's close in order for the out-of-the-money calls to be profitable. This breakeven mark sits 4.9% above the stock's current perch at $21.58. At last night's close, delta for the call arrived at 0.24, or 24%, implying a roughly 1-in-4 chance the position will find its way into the money by week's end. If Chesapeake Energy is unable to muscle above the strike price ahead of expiration, the most the traders have risked is the initial premium paid.
Given that CHK has bounced more than 20% from its most recent low of $18.21 -- tagged on April 18 -- option players have exhibited a growing taste for long calls of late. During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 38,510 calls, versus 27,058 puts. The resulting call/put volume ratio of 1.42 shows a rise from the May 10 reading of 1.21. Additionally, the current ratio ranks in the 73rd percentile of its annual range, pointing to a healthier-than-usual appetite for bullish bets over bearish.
Outside of the options pits, sentiment is not so sanguine. Among covering analysts, 18 out of 27 maintain a "hold" or "strong sell" suggestion toward the stock, while the consensus 12-month price target of $23.07 represents expected upside of just 6.9% to present trading levels. Additionally, short interest accounts for 11% of the equity's available float, representing nearly six sessions' worth of pent-up buying demand. Should the stock continue to outperform, an additional round of upgrades and/or price-target hikes could spark a short-covering rally.
Fundamentally, Chesapeake Energy Corporation's (NYSE:CHK) annual shareholder meeting is slated to begin this Friday at 11:00 a.m. ET.