Chesapeake Energy Corporation (CHK) Bulls See a Round-Number Breakout

Chesapeake Energy Corporation's (CHK) July 20 call is in focus today

by Karee Venema

Published on Mar 4, 2015 at 1:56 PM
Updated on Apr 20, 2015 at 5:32 PM

Chesapeake Energy Corporation (NYSE:CHK) is sliding in step with oil today, down 5.3% at $15.35 -- and earlier hit a two-year low of $15.34. Options traders are paying no mind, however, and are scooping up calls at a rate two times the intraday average.

Most active in CHK's options pits this afternoon is the July 20 call, where it appears new positions are being purchased. By buying the calls to open, speculators are gambling on CHK to break through the round-number $20 mark by the close on Friday, July 17 -- when the options expire. Amid today's plunge, delta on the call has dropped to 0.15 from 0.20 at last night's close, suggesting a decreased probability of an in-the-money finish.

From a wider sentiment perspective, today's accelerated call activity runs counter to the withstanding trend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CHK's 50-day put/call volume ratio of 1.34 ranks in the 82nd annual percentile, meaning puts have been bought to open over calls at a faster-than-usual clip in recent months.

The prevailing skepticism among options traders -- as well as analysts -- more closely aligns to CHK's dismal technical showing. In fact, since topping out at a two-year high of $29.92 last July, the shares have shed almost half their value. Given this disappointing price action, it's possible that some of today's call buying at the out-of-the-money July 20 strike could be a result of short sellers protecting their bearish bets against any unexpected upside. Currently, a healthy 10.6% of Chesapeake Energy Corporation's (NYSE:CHK) float is sold short.

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