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Chesapeake Energy Corporation (CHK) Call Volume Spikes

One weekly trader sees post-earnings upside for CHK

by 10/24/2013 12:56 PM
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Option Brief: Chesapeake Energy Corporation (NYSE:CHK) is up around 3.8% today to trade at $28.33, after Citigroup raised its rating on the stock to "buy" from "neutral" in pre-market action. Not surprisingly, option bulls are converging on the gas and oil concern, with about 21,000 calls changing hands thus far -- more than double the intraday norm. By comparison, roughly 3,000 puts have crossed the tape.

Leading the pack is the weekly 11/8 28.50-strike call, where close to 5,400 contracts have been exchanged. This includes a block of 4,494 calls that traded at an ask price of $0.76 each, suggesting they were purchased. Meanwhile, today's volume has surpassed current open interest levels, and implied volatility at the strike has ticked 1.9 percentage points higher, signaling the addition of new long positions. What's more, data from the International Securities Exchange (ISE) corroborates the presence of buy-to-open activity at this strike.

In other words, the block trader is expecting CHK shares to conquer the $28.50 mark by the close on Nov. 8 -- a time frame that encompasses the company's next turn in the earnings confessional. However, since short interest accounts for a lofty 12.3% of the equity's available float, an alternate scenario suggests that today's out-of-the-money call buyer could be a skeptic looking to hedge his bearish bets in the event of a post-earnings rise.

Still, a bullishly motivated transaction wouldn't be surprising, as Chesapeake Energy Corporation (NYSE:CHK) boasts a year-to-date gain of over 70%. What's more, the firm will report third-quarter earnings before the market opens on Nov. 6. Although the stock has a history of posting losses the day after stepping up to the earnings plate -- having done so in six of the past eight quarters -- CHK's August report yielded a next-day return of 7.1%.


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