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Chesapeake Energy Corporation option sellers gamble on familiar support
While most U.S. equities are flirting with low-volume gains, commodity concern Chesapeake Energy Corporation (NYSE:CHK) and its sector peers are sinking in step with natural gas futures. CHK is down 6.6% at $18.55, yet some option traders are expecting near-term support at $16.50 to hold through the next few weeks.
CHK has seen roughly 24,000 puts cross the tape so far today -- nearly three times the norm, and more than double the number of CHK calls exchanged. Most active is the weekly 1/9 16.50-strike put, where the majority of the contracts have traded on the bid side, and data from the International Securities Exchange (ISE) confirms fresh sell-to-open activity.
By writing the puts to open, the speculators expect CHK to remain north of $16.50 through the close on Friday, Jan. 9, when the weekly contracts expire. In this best-case scenario, the puts will expire worthless, and the sellers can retain the entire premium received from the sale.
On the charts, the $16.50-$17 region has proven significant for Chesapeake Energy Corporation (NYSE:CHK) shares over the past couple of years. This area acted as resistance in late 2012 and early 2013, before emerging as support, and more recently curbed CHK's pullbacks in the fourth quarter.