Chesapeake Energy Corporation (CHK) Restructuring Reports Have Options Pits Popping

Chesapeake Energy Corporation (NYSE:CHK) has sunk 28% today, following reports the firm has hired restructuring lawyers

Feb 8, 2016 at 11:55 AM
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Chesapeake Energy Corporation (NYSE:CHK) has plunged 28% today to $2.21 -- and earlier hit a 16-year low of $1.50 -- and has been halted no fewer than seven times. Not only are oil prices sinking, but the company has reportedly hired restructuring lawyers -- although it insists it is not filing for bankruptcy -- March bonds have sunk 20 basis points, and Barron's most recent cover story is entitled, "Here Comes $20 Oil" (subscription required). Against this bearish backdrop, the stock has been placed on the short-sale restricted list, and option volume is running at four times what's typically seen at this point in the day.

Speculative players are easily showing a preference for puts over calls, with 69,000 of the former on the tape, compared to 53,000 of the latter. Amid this accelerated activity, CHK's 30-day at-the-money implied volatility is up 23.5% to 170.9% -- in the top percentile of its annual range.

Most active is CHK's March 2 put, where data from the International Securities Exchange (ISE) confirms at least some buy-to-open activity. In other words, speculators expect the stock to extend today's slide through March options expiration. Elsewhere, one trader opened block of 15,000 weekly 3/11 3-strike puts, but the bid/ask skew is fairly wide, so it's not easy to tell whether it's being bought or sold.

More broadly speaking, it's been put buyers who have dominated CHK's options pits. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio has jumped to 5.18 from 2.31 over the past two weeks, and now ranks above all other readings taken in the past year.

Echoing this is CHK's Schaeffer's put/call open interest ratio (SOIR) of 4.12 -- in the 95th percentile of its annual range. Simply stated, short-term speculators have rarely been as put-heavy toward the stock as they are now.

The skepticism is seen outside of the options pits, as well. All but one of the 18 analysts covering the shares maintain a "hold" or worse suggestion. Additionally, 230.91 million CHK shares are sold short, or 8.6 times the average daily trading volume.

None of this should be too surprising, considering Chesapeake Energy Corporation's (NYSE:CHK) dismal technical backdrop. Heading into today's session, the stock was staring at an 85% year-over-year deficit -- and had underperformed the broader S&P 500 Index (SPX) by a jaw-dropping 52 percentage points in the past three months.

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