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Speculators See Chesapeake Energy Corporation (CHK) Headed South

Chesapeake Energy Corporation has been giving up ground since mid-month

by 5/29/2014 9:32 AM
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Option Brief: While Chesapeake Energy Corporation (NYSE:CHK) call volume more than doubled put volume yesterday, the most significant chunk of opening activity took place at the weekly 6/13 27.50-strike put. Nearly 2,600 contracts changed hands here, making it CHK's second most active strike on Wednesday.

Getting into the details, 65% of the volume at the weekly strike took place at the ask price, hinting at buyer-driven activity. In addition, open interest added 2,400-plus contracts overnight (more than any other CHK option), and data from the International Securities Exchange (ISE) confirms a portion of the puts were bought to open. According to Trade-Alert, the buyers paid a volume-weighted average price (VWAP) of $0.34 per contract.

In order for the traders to profit, the shares will need to drop from their current perch at $28.41 below $27.16 (strike less VWAP) by the close on Friday, June 13 -- when the weekly contracts expire. The speculators will reap additional gains with each step lower, as well. However, if the puts expire out of the money two-plus weeks from now, the bearish bettors risk parting with the initial premium paid.

On the technical front, Chesapeake Energy Corporation's (NYSE:CHK) track record is mixed. While the shares have gained 26% on an annual basis, they've been in consolidation mode since May 13, when they touched a two-year high of $30.48.

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