Option Bull Risks $500K on Chesapeake Energy Corporation (CHK)

Chesapeake Energy Corporation (CHK) is slumping alongside oil prices

by Kirra Fedyszyn

Published on Oct 11, 2016 at 3:33 PM

While oil prices pull back today, energy stocks are getting slapped -- including Chesapeake Energy Corporation (NYSE:CHK), which was last seen off 3.3% at $6.23. That hasn't stopped at least one options trader from placing a big bullish bet, however, with CHK calls crossing the tape at twice their typical intraday rate.

Specifically, about 54,000 CHK call options have traded today, compared to just over 11,000 put options. Leading the action by a hefty margin is the October 6.50 call, where one speculator bought to open a block of 18,750 contracts, according to Trade-Alert. In short, the call buyer is betting on a bounce back above the $6.50 level before the front-month option expires at next Friday's close. Given the purchase price of $0.26 per contract, the trader's initial cash outlay clocks in at $487,500 (premium paid * number of contracts * 100 shares per contract) -- which is also the most the call buyer stands to lose, should the options expire out of the money.

While a preference for calls is nothing new in CHK's options pits, the stock is still surrounded by pessimism elsewhere. Specifically, short interest currently accounts for 111.2 million shares, or 15.5% of the equity's available float. If the stock rebounds, a round of short covering could easily create tailwinds for CHK.

Meanwhile, more than four-fifths of the brokerage firms tracking CHK rate it a "hold" or worse. Plus, the average 12-month price target of $6.32 sits roughly in line with current levels, and well shy of CHK's September year-to-date highs north of $8. A round of upgrades and/or price-target hikes could be overdue, potentially giving the shares a serious boost.

In fact, all the bearish sentiment is rather surprising, considering Chesapeake Energy Corporation's (NYSE:CHK) technical performance in recent months, today's losses notwithstanding. In addition to notching a solid 38% year-to-date lead, the stock has more than quadrupled since bottoming at a 16-year low of $1.50 in February. Plus, the shares appear to have found a foothold above the round $6 level. This support could be reinforced as October options expiration approaches, as the 6 strike is home to heavy put open interest in the front-month series.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.


A Schaeffer's exclusive

6 Sectors for Summer

Access your FREE insider report before it's too late!


  
 

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

MORE | MARKETstories


The Next Big Player in U.S. MJ Boom
Most pure-play marijuana stocks in the U.S. trade on the Over-the-Counter stock exchange.
Wall Street Roars Higher Amid Civil Unrest
Investors weighed a mixed bag of jobs data
AstraZeneca Stock Flat Despite COVID-19 Vaccine News
AstraZeneca saw a rise in capacity for its COVID-19 vaccine candidate
The Next Big Player in U.S. MJ Boom
Most pure-play marijuana stocks in the U.S. trade on the Over-the-Counter stock exchange.