How Option Traders Are Playing Chesapeake Energy Corporation, Marathon Oil Corporation, and Transocean LTD

A closer look at the levels option bears are targeting for Chesapeake Energy Corporation (NYSE:CHK), Marathon Oil Corporation (NYSE:MRO), and Transocean LTD (NYSE:RIG)

by Josh Selway

Published on Jan 20, 2016 at 11:51 AM
Updated on Jan 20, 2016 at 12:53 PM

As oil futures continue to hit new lows, we wanted to look back and see how option traders have been positioning themselves amid the downturn. Below, we break down recent option activity on commodity stocks Chesapeake Energy Corporation (NYSE:CHK)Marathon Oil Corporation (NYSE:MRO), and Transocean LTD (NYSE:RIG) ​to see what traders are expecting in the near term. 

CHK is one of the biggest S&P 500 Index (SPX) losers today, with the shares giving back 8.8% at $2.80, and earlier touching a 15-year low of $2.69. These types of losses are not unusual for the stock, which has given back roughly 86% of its value in the past 12 months. 

Looking to the options pits, the February 1.50 put has seen the largest increase in open interest over the past two weeks -- and it's not even close. Almost 150,000 positions have been added at the strike, with the next closest only boasting an addition of roughly 52,000 positions. If traders are buying to open positions here, they're looking for CHK to fall more than 46% before the options expire at the close on Friday, Feb. 19. 

Sometimes, buy-to-open activity at such out-of-the-money (OOTM) put options tends to signal shareholders hedging their positions. However, given the stock's propensity to make outsized moves, and with oil's pain showing no sign of stopping, it may not be out of the question to think some are betting on CHK to fall to this level. 

It's probably not surprising to note that put buying is near annual-high levels at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, Chesapeake Energy Corporation's 10-day put/call volume ratio across these exchanges comes in at 3.11 -- just 3 percentage points from an annual high.  

MRO, meanwhile, is off 6.6% at $7.17. Also, the stock's session low of $7.08 marks a 12-year nadir, as the shares have slid over 77% since their annual high of $31.53 in May. 

The oil stock's option traders have taken a slightly longer-term view over the past two weeks. The April 7 strike put has added more than twice as many positions as the next closest option, with nearly 67,000 contracts added. Data from the major exchanges indicates buy-to-open activity is prevalent here, meaning speculators are betting on MRO falling below $7 in the next few months. 

At the ISE, CBOE, and PHLX, Marathon Oil Corporation's 10-day put/call volume ratio has surged from 0.47 to 1.38 over the past two weeks. This current reading lands in the 83rd percentile of its annual range.

Lastly, RIG is also testing new lows, hitting an all-time nadir of $8.65 earlier. The stock was last seen down 6.6% at $8.85, bringing its year-over-year decline to almost 45%. Traders have been betting on extended losses by buying to open the February 8 put, where almost 45,000 positions have been added over the past 10 sessions. Evercore ISI is also targeting this level, as it lowered its price target to $8 from $12 this morning. 

Widening the sentiment scope, though, shows Transocean LTD's option activity may not stack up as one would expect. Specifically, while put buying has continued to have the advantage on an absolute basis at the ISE, CBOE, and PHLX, the stock's 50-day call/put volume ratio across the exchanges -- 0.52 -- is higher than 86% of readings from the past year. In other words, call buying has actually been more popular than usual over recent weeks. 


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