Chesapeake Energy Corporation (CHK) Sell-Off Sparks Rush of Put Buying

Chesapeake Energy Corporation (CHK) put volume has reached peak levels

by Karee Venema

Published on Jan 5, 2015 at 10:39 AM
Updated on Apr 20, 2015 at 5:32 PM

Option bears have set their sights on Chesapeake Energy Corporation (NYSE:CHK) in recent weeks, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the stock has tallied a 10-day put/call volume ratio of 2.62 on this trio of exchanges -- a ratio that sits higher than all other comparable readings taken in the past year. Simply stated, puts have been bought to open over calls at an annual-high clip in recent weeks.

This put-skewed trend was witnessed on Friday, when puts crossed the tape at 1.5 times what's typically seen, and outpaced calls by a nearly 4-to-1 margin. The majority of the day's action came at the hands of a single speculator who bought to open one block of 8,000 February 20 puts, while simultaneously selling to close a symmetrical block of January 2015 19-strike puts. In other words, she rolled her bearish bet up and out, betting on continued struggles for the stock, but giving herself a little more wiggle room with the in-the-money back-month puts.

Technically speaking, it's been a tough year for Chesapeake Energy Corporation (NYSE:CHK), which has shed more than 24% over the past 52 weeks. More recently, the equity spent the majority of December churning south of the round-number $20 mark -- home to a lofty accumulation of call open interest in the January series. Today, the shares are continuing this negative price action, down 4.8% at $18.80 after Bernstein cut its price target to $27 from $23 (although the brokerage firm did reiterate its "outperform" rating).

Weekly Chart of CHK Since January 2014

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