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Most Active Options Update: Chesapeake Energy, Micron, and J.C. Penney

CHK, MU, and JCP are seeing notable options trading activity today

by 3/21/2013 2:54 PM
Stocks quoted in this article:

Of the 20 equities seeing the heaviest options volume in recent sessions, three names of notable interest this afternoon are Chesapeake Energy Corporation (NYSE:CHK - 20.76), Micron Technology, Inc. (NASDAQ:MU - 9.14), and J.C. Penney Company, Inc. (NYSE:JCP - 15.46). Here is a quick look at today's interesting activity in these options pits.

Chesapeake Energy has had a solid run up the charts in 2013, with the shares tacking on roughly 25%. However, one group of speculators in today's session believes the stock is due for a pullback in the near term. Almost 2,600 contracts have traded at CHK's 3/28 20-strike put, nearly all of which have crossed at the ask price. There are currently no open positions here, making it safe to assume that some of today's activity is of the buy-to-open variety. By purchasing the out-of-the money puts for a volume-weighted average price (VWAP) of $0.13, traders will begin to profit with each step south of $19.87 (strike less VWAP) Chesapeake takes through next Thursday's close, when the weekly options expire. Meanwhile, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 1.40 ranks higher than 71% of other such annual readings. In other words, calls have been bought to open over puts at a healthier-than-usual clip in recent weeks. In light of this withstanding sentiment, as well as the stock's formidable year-to-date gain, today's put buyers could simply be shareholders picking up some options-related insurance against a potential pullback.

Micron Technology is another stock that's had a solid technical showing this year, with the equity up around 44%. It appears one MU shareholder picked up some portfolio protection ahead of tonight's earnings announcement, and initiated a collar using Micron's weekly 3/22 9-strike puts and 10-strike calls. The 562 contracts that traded at the former went off at the ask price for $0.18, while a symmetrical block at the latter crossed at the bid price for $0.10, creating a net debit of $0.08 on the play. By simultaneously purchasing the protective put and the covered call, the trader has instituted an options-related hedge against any earnings-induced downside. However, should the stock move above $10 through tomorrow's close, he has also limited any upside gain, as the sold calls will expire in the money (increasing the chance they'll be called away). As mentioned, the company will unveil its quarterly earnings report after the market closes tonight. Micron Technology has fallen short of analysts' bottom-line expectations in each of the last four quarters. For MU's fiscal second quarter, Wall Street is calling for a loss of 19 cents per share.

Despite JCP trading 4% lower today, the stock's August 18 call is seeing some buyer-driven volume. Almost all of the 1,962 contracts traded here have changed hands at the ask price, implied volatility was last seen 1.5 percentage points higher, and volume is outstripping open interest, suggesting new bullish positions are being created. Breakeven for these deep out-of-the-money calls is $19.77 (strike price plus VWAP of $1.77), or 28% above J.C. Penney's current levels. Delta for the call is perched at 0.43, or 43%, implying a roughly 2-in-5 chance the position will land in the money by expiration. Technically, shares of JCP have surrendered more than 21% year-to-date. Fundamentally, a group of creditors who claimed J.C. Penney defaulted on its bond agreement withdrew their claim from the Delaware Court of Chancery on Wednesday.

The 20 stocks below have attracted the highest options volume -- in the front three-months' series -- during the past 10 trading days. The companies highlighted are those that are new to the list since the last time the study was run. Data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White.

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