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Chesapeake Energy Corporation (CHK) Puts May Act as a Hedge

The session's most active CHK option is the product of a single trader

by 10/7/2013 1:46 PM
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Overall option volume in Chesapeake Energy Corporation's (NYSE:CHK) options pits is par for the course, but a closer look reveals that heightened put volume is actually compensating for slower-than-usual call volume. By far, the most active option is the April 22 put, which has seen exactly 6,000 contracts cross the tape at the ask price of $0.82 each -- all as a single block trade. Open interest at the strike consists of fewer than 100 contracts, and implied volatility is marginally higher, so today's noteworthy lot was likely bought to open.

Under the terms of the trade, the speculator is wagering on CHK -- currently sitting at $26.43 -- tumbling past $21.18 (strike price less premium paid) by April options expiration. With each step south of this breakeven mark, the trader will profit. On the other hand, if the shares remain above the strike throughout the option's lifetime, the most today's put buyer can lose is his initial cash outlay.

On the charts, CHK has mustered an impressive display, tacking on nearly 60% in 2013 and outperforming the broader S&P 500 Index (SPX) by 24 percentage points during the past 60 sessions. For that reason, it's possible that this morning's headline-grabbing trader is in fact protecting his own long stock position against a potential longer-term pullback in the shares.

Elsewhere, Chesapeake Energy Corporation (NYSE:CHK) is approaching its ex-dividend date this Thursday. A $0.0875 per-share payout will be distributed to shareholders on Oct. 31.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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