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