Time to Buy Chesapeake Energy Put Options

CHK has the worst average first-quarter return of any SPX stock over the past decade

Dec 28, 2017 at 1:36 PM
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Much of the energy sector has outperformed this month thanks to rising oil prices. In fact, data from Schaeffer's Quantitative Analyst Chris Prybal shows oil exchange-traded funds (ETFs) are having an unusually strong December, compared to their historical returns, as seen in the table below. But many energy stocks are still facing seasonal headwinds, including Chesapeake Energy Corporation (NYSE:CHK). Here's why it may be a good idea to sell CHK stock before New Year's.

average dec returns vs 2017

Looking at returns from S&P 500 Index (SPX) stocks over the past 10 years, shares of Chesapeake Energy have struggled dramatically during the early months of the year. Not only did the security show up on our list of worst January stocks, but it's also on the list of worst stocks to own for the entire first quarter -- and registers the largest average loss for the January-March period, at -9.4%.

worst january stocks 2017

worst first quarter stocks 2017

The security was last seen trading 4.5% higher for the day at $4.05, as it continues to battle the 80-day moving average. The trendline has acted as resistance on several occasions over the past year, guiding CHK to a year-to-date loss of 42%. One silver lining for shareholders may be that the $3.50 level continues to offer up strong support for the shares.

But sentiment across Wall Street is mostly bearish. Just one brokerage firm recommends buying the stock, and there are 17 analysts in coverage. More notably, short interest accounts for almost 19% of Chesapeake's float.

Regardless, it looks like a good time to target short-term options contracts. That's because the Schaeffer's Volatility Index (SV) for CHK comes in at 46% -- ranking just 10 percentage points from an annual low. This would suggest volatility expectations are lower than normal at the moment.



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