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Put buyers targeted natural-gas giant Chesapeake Energy Corporation (NYSE:CHK) on Monday, with the commodity stock's January 2014 16-strike put emerging as the day's most popular option. A total of 5,011 contracts were exchanged at this out-of-the-money strike, with 100% of those trading at the ask price. Since nearly all of these CHK puts translated into new open interest overnight, it looks as though options players were buying to open new bearish bets on the shares during Monday's session.
These long-term Chesapeake Energy put options traded at a volume-weighted average price (VWAP) of $1.35, with speculators shelling out for a healthy chunk of time value. Based on this entry price, Monday's 16-strike put buyers will begin to profit if the stock falls below breakeven at $14.65 (strike price less VWAP) prior to January 2014 expiration. The stock settled yesterday at $18.60, so these option bears need CHK to drop more than 21.2% over the next nine months.
Long-term puts were the contracts of choice on Monday, but short-term speculators are also skeptical of CHK's prospects. The stock's Schaeffer's put/call open interest ratio (SOIR) arrives at 1.52, with puts outnumbering calls among options set to expire within three months. This ratio ranks above 77% of other such readings taken during the past year, revealing that near-term traders are more put-heavy than usual on Chesapeake Energy shares.
Some of this negativity could be due to the company's upcoming earnings report, which is set to hit the Street before the market opens next Wednesday, May 1. Analysts are currently expecting CHK to announce a first-quarter profit of 25 cents per share, but the commodity concern has fallen short of consensus bottom-line estimates in two of its last four quarterly reports.
While the security has racked up a gain of roughly 12% year-to-date, CHK is down about 19% from its March peak near $23. In fact, the stock recently fell below its 80-day moving average, which previously served as support during a pullback earlier this month. Going forward, this trendline could switch roles to act as resistance.