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Chesapeake Energy Corporation (NYSE:CHK) has endured a rocky June, losing more than 7.7% of its value since the start of the month, and breaching trendline support from its 10-day and 80-day moving averages. Trading at $20.15, the stock is now up just over 10% in the last 52 weeks. CHK speculators don't foresee a recovery over the next few weeks, either, and are extending the life of their short call positions today, as front-month options expire.
First, 2,520 of the June 22 calls were evidently purchased to close at the ask price of $0.01. In mid-May, a similarly sized block opened at the bid price of $0.20. If this was in fact the same trader, he booked a profit of $0.19 per contract (collecting an initial premium of $0.20, then buying the position to close for just $0.01).
The trader then collected more premium upfront via July 22 calls, as another block of 2,520 traded at the bid price of $0.22. Data from the International Securities Exchange (ISE) confirms these orders were of the sell-to-open variety. In order for the call seller to reap the maximum potential profit on this trade (which is 100% of the credit collected), CHK has to be trading below $22 on July 19, when the option expires. This is a jump of 9.2% from current levels (which, as noted above, isn't far off compared to the stock's year-over-year gains). Note that if these are covered calls, the trader is booking losses on his existing stock position with every step lower in the shares.
During the last two weeks, Chesapeake Energy option players have taken a more "vanilla" approach to call trading. The stock's 10-day call/put volume ratio measuring activity at ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that roughly five calls have been purchased to open for every four puts over this timeframe. The ratio ranks in the 62nd annual percentile, indicating that demand for long calls is slightly higher than average.