Calls Hot as Chesapeake Energy Corporation (CHK) Sinks with Oil

Traders are picking up calls as Chesapeake Energy Corporation (CHK) plummets

Jul 5, 2016 at 2:51 PM
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Oil-and-gas stock Chesapeake Energy Corporation (NYSE:CHK) is off 7.7% at $4.24 today, as crude oil slides more than 5% to $46.52 per barrel for the August contract. It's been a rocky road for the stock, which is off 59% year-over-year. Meanwhile, with the stock on the short-sale restricted list amid today's slide, it's calls that are heating up in CHK's options pits.

Specifically, CHK calls are trading at roughly 1.5 times their average intraday rate, outnumbering puts nearly 4-to-1. The most popular option by far today is the August 5.50 call, where the International Securities Exchange (ISE) confirms positions have been bought to open. Buyers of the call are betting on CHK to rally above the $5.50 level by the close on Friday, August 19, when the back-month option expires. But this would be no small feat for CHK, which hasn't even breached the round $5 level on a closing basis since early May.

Buyers of the stock's short-term options appear to be getting a bargain today, in any case. CHK's Schaeffer's Volatility Index (SVI) is seated at 71% -- in the low 11th percentile of its annual range. That means premium on the stock's near-term options should be pricing in low volatility expectations at the moment.

Taking a step back, today's preference for calls is nothing new for CHK. In fact, the stock's 10-day call/put volume ratio at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is currently at an annual high of 6.18. This means traders have purchased more than six CHK calls for each put over the past 10 sessions. Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.93 is seated at a 12-month call-skewed low.

It's possible some of the recent call buyers may actually be short sellers looking to hedge their bearish bets against upside risk, however. At the moment, more than 16% of CHK's total float is sold short.

Analysts don't appear to think much of the stock, either. Just one of the 19 brokerage firms providing coverage recommends buying the stock. Plus, the average 12-month price target of $4.48 sits less than 6% overhead -- and lower than Friday's close.

From a technical standpoint, CHK has been struggling of late. The shares are still 5.7% shy of their year-to-date breakeven level, and have been running into resistance at their 80-day moving average for the past month. There is a bit of good news, however. It looks like Chesapeake Energy Corporation (NYSE:CHK) may have found a new foothold in the form of its 120-day moving average -- a trendline that served as resistance from September 2014 through several fruitless rally attempts this March.

CHK Daily Chart July 5

 

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