Put Options Explode as Chesapeake Energy Corporation (CHK) Charges Higher

Chesapeake Energy Corporation (CHK) is surging following a pair of bullish brokerage notes

by Alex Eppstein

Published on Jul 21, 2016 at 1:34 PM
Updated on Jun 24, 2020 at 10:16 AM

Chesapeake Energy Corporation (NYSE:CHK) options are flying off the shelves, as the oil stock takes off on positive analyst attention. Specifically, the shares received an upgrade to "buy" from "hold" at Tudor Pickering, and a price-target hike to $6 from $5 at Scotia Howard Weil. At last check, CHK is up 6.3% at $5.04.

As alluded to, the stock's options pits are going wild, especially on the put side of the fence. So far, 35,500 CHK puts have been exchanged -- or five times the expected intraday rate. The vast majority have traded at the September 5 put, where a sweep of 18,760 contracts was initiated earlier -- though it's unclear whether the options were bought or sold.

Speaking more generally, calls have been the options of choice among CHK traders. In the past two weeks across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly six calls for each put. The resultant call/put volume ratio of 5.84 is located just 2 percentage points from an annual high.

Underscoring this call bias, CHK's Schaeffer's put/call open interest ratio (SOIR) clocks in at 0.77. Not only does this reading indicate calls outstrip puts among options expiring in the next three months, but it also ranks in the bottom percentile of its annual range. In other words, short-term open interest levels are extremely call-tilted.

At the same time, it's worth noting the rise in short interest we've seen lately. During the most recent reporting period, short interest spiked 8.6%, and now accounts for 17.5% of CHK's float. As a result, it's possible some call buyers may actually be short sellers picking up options insurance.

On the other hand, Chesapeake Energy Corporation (NYSE:CHK) has earned the positive attention it's received. The oil stock has gained nearly 12% this year, and is poised to close above its 200-day moving average for the first time since early May. A capitulation among unhedged short sellers could add fuel to CHK's technical fire.

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