Chesapeake Energy Corporation (CHK) Option Bulls Keep the Faith

Buy-to-open call activity has been growing in popularity on Chesapeake Energy Corporation (NYSE:CHK) in recent weeks

by Karee Venema

Published on Jul 1, 2015 at 2:40 PM

Crude is notably lower today, after the weekly inventories update showed supplies unexpectedly rose. This has oil-and-gas issue Chesapeake Energy Corporation (NYSE:CHK) plunging, with the equity off 5.6% at $10.55, after earlier hitting a new six-year low of $10.53. This only echoes the stock's withstanding technical trajectory, though, with shares of CHK shedding almost 64% of their value over the past 12 months -- and teetering dangerously close to single-digit territory for the first time since December 2008.

In spite of these long-term technical troubles, option traders have shown a growing appetite for long calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CHK's 10-day call/put volume ratio has jumped to 2.28 from 1.39 over the past two weeks, and now sits in the 64th percentile of its annual range.

Drilling down on the front-month series -- which expires at the close on Friday, July 17 -- peak call open interest is currently found at the 13 strike, where almost 59,000 contracts reside. Since mid-April, specifically, 8,132 calls have been bought to open at this out-of-the-money (OOTM) strike at the ISE, CBOE, and PHLX, meaning traders are anticipating CHK to be sitting north of $13 at expiration.

Given the stock's steady decline, it's possible some of the activity here -- and at other OOTM strikes -- is a result of short sellers hedging their bearish bets against any unexpected upside. Short interest popped 17% in the latest reporting period, and now accounts for almost 25% of CHK's float, or 162.1 million shares -- the loftiest amount in at least 13 years.

Regardless, those currently purchasing Chesapeake Energy Corporation's (NYSE:CHK) near-term options are in luck. The stock's Schaeffer's Volatility Index (SVI) of 47% rests lower than 66% of all similar readings taken in the past year. Simply stated, premium on CHK's short-term options is pricing in relatively deflated volatility expectations.

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earning announcements before it's too late!



NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories

Look Who's Going Bankrupt Next in America
Porter Stansberry is making a concerning prediction.
CE Stock Heading into Bullish Month
Celanese stock is coming off a free fall from its all-time-high in late 2019
HD Stock Sinks on Bear Notes, In-Store Changes
Home Depot stock received price target cuts after sharing in-store changes
Look Who's Going Bankrupt Next in America
Porter Stansberry is making a concerning prediction.