Chesapeake Energy Corporation (CHK) Options Volume Hits Overdrive

Chesapeake Energy Corporation (NYSE:CHK) is soaring in step with crude oil prices

by Karee Venema

Published on Sep 8, 2016 at 1:41 PM
Updated on Jun 24, 2020 at 10:16 AM

Chesapeake Energy Corporation (NYSE:CHK) is surging in step with oil prices, following an encouraging report on domestic crude inventories from the International Energy Agency (IEA) . At last check, shares of the energy stock were up 13.7% at $7.74, making it one of the biggest advancers on the New York Stock Exchange. Against this backdrop, options volume is accelerated on CHK stock, with the contracts crossing at three times the average intraday pace.

By the numbers, around 87,000 call options have changed hands -- in the 97th annual percentile -- compared to about 45,000 put options. CHK's October 7 call has seen the most action, with more than 13,800 contracts traded. It looks like some of the activity is of the buy-to-open kind, meaning call buyers are betting on CHK to continue its climb beyond $7 through back-month option's expiration at the close on Friday, Oct. 21.

Widening the sentiment scope reveals call buying has been the dominant strategy at the major options exchanges in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have bought to open 29,102 calls over the past 10 sessions, compared to 11,799 puts. What's more, the resultant call/put volume ratio of 2.47 ranks in the elevated 76th annual percentile.

Echoing this call-skewed backdrop is CHK's Schaeffer's put/call open interest ratio (SOIR) of 0.94, which rests lower than 86% of all comparable readings taken in the past year. Simply stated, speculative players are more call-heavy than usual among options set to expire in three months or less.

However, short interest shot 21.6% higher in the most recent reporting period, and now stands at a lofty 16.9% of CHK's available float. As such, it's possible that a portion of this call buying could be a result of short sellers hedging their bearish bets against any upside risk.

Regardless, now appears to be a prime time to purchase premium on CHK's short-term options. Not only does the stock's Schaeffer's Volatility Index (SVI) of 70% rank in the 5th percentile of its annual range, but its 30-day at-the-money implied volatility of 72.7% is perched below 94% of similar readings taken over the last 12 months. Summing it all up, low volatility expectations are priced into the equity's near-term options.

On the charts, Chesapeake Energy Corporation (NYSE:CHK) has made significant strides since bottoming at a 16-year low at $1.50 on Feb. 8, up more than 400%. Amid this uptrend, the stock has staged a convincing breakout north of its 320-day moving average -- a trendline that had held CHK at bay for nearly two years.

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