Chesapeake Energy Corporation (CHK): Is the Worst Yet to Come?

It's been a rough week for oil-and-gas names, which have struggled in step with crude. Chesapeake Energy Corporation (NYSE:CHK) is no exception, with the shares down 19% from last Friday's close. In addition to feeling the heat from a sell-off in crude, CHK has also been pressured by news of  suspended dividend payment and a subsequent bearish brokerage note. Today, in fact, CHK hit a 12-year low of $8.40, and was last seen down 2.2% at $8.85.

The worst isn't over, according to option players. With a little over an hour left in today's trading, intraday put volume has popped to four times what's typically seen at this point in the day, and a number of speculators are calling for even lower lows over the next several months.

Among the strikes seeing the most action in CHK's options pits today are the October 8 and 11 puts. Drilling down, it appears one speculator may be rolling down her bearish bet by selling to close the higher-strike puts, and buying to open the lower-strike puts. If this is indeed the case, the goal is for the stock to breach the $8 mark for the first time since May 2003 by the close on Friday, Oct. 16 -- when the options expire.

Elsewhere, it looks as if another group of traders is setting their sights even lower -- eyeing a move to levels not seen since October 2002. Specifically, it seems safe to assume new positions are being purchased at CHK's October 6 put. Delta on the put is docked at negative 0.18, suggesting a less than 1-in-5 chance the option will be in the money at expiration.

Regardless of where Chesapeake Energy Corporation (NYSE:CHK) settles at October options expiration, these put buyers can rest easy knowing the most they have on the line is the initial premium paid. In fact, limited risk is one of the many advantages stock options offer.