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Chesapeake Energy Corporation (CHK) Shareholders May Be Hedging

CHK's October 24 put took the top position on a light day of trading

by 9/5/2013 10:31 AM
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In terms of options trading volume, Wednesday's session was a slow one for Chesapeake Energy Corporation (NYSE:CHK). Roughly 9,300 contracts changed hands in total, which is about one-quarter of the typical daily volume.

The stock's most active option was the October 24 put, where 1,561 contracts crossed the tape -- 96% at the ask price, suggesting they were bought. Open interest increased by 1,404 contracts overnight, as well, which indicates the bearish positions were freshly minted for a volume-weighted average price (VWAP) of $0.45. Information from the International Securities Exchange (ISE) confirms a portion of this buy-to-open activity.

CHK is currently trading at $26.21, but in order for yesterday's traders to begin profiting, they need the shares to dip beneath $23.55 (strike price less VWAP) by options expiration. If the stock remains above the strike through the closing bell on Oct. 18, however, the most the speculators can lose is the premium paid.

Technically speaking, Chesapeake Energy Corporation (NYSE:CHK) is a long-term outperformer. The oil and gas name boasts a year-to-date advance in excess of 57%, and during the past two months, it has outperformed the broader S&P 500 Index (SPX) by 22 percentage points. Such strength on the charts means there's a chance that yesterday's traders weren't true bears, but rather, were shareholders protecting themselves against a short-term pullback.

Option Briefs offer a concise look at the 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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