Calls Hot as Chesapeake Energy Stock Eyes Best Month in Years

CHK is still heavily shorted, though

May 22, 2018 at 2:55 PM
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Chesapeake Energy Corporation (NYSE:CHK) shares are headed toward their best monthly performance since April 2016, up 60.8% so far thanks to booming oil prices. This monstrous rally has sparked a rush of activity in CHK's options pits. And while most of the action is on the call side, it may not all be at the hands of bullish options traders.

Looking back over the past 10 days of trading at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 152,614 calls on CHK, compared to 25,390 puts. The resultant 10-day call/put volume ratio of 6.01 ranks in the 69th annual percentile, indicating the rate of long calls initiated relative to puts has been quicker than usual.

The July 5 call has seen one of the biggest increases in open interest over this time frame, with 13,284 contracts added -- and data from the major options exchanges confirms most of these positions were bought to open in recent weeks. This out-of-the-money (OOTM) strike is being targeted by call buyers today, too.

Taking a quick step back, nearly 145,000 CHK calls are on the tape so far -- four times what's typically seen at this point in the session, and volume pacing in the 100th annual percentile. Most active is the weekly 5/25 5-strike call, where the bulk of the nearly 20,500 contracts traded appear to be seeing buy-to-open activity.

While it's possible that some of this trading is a result of traditional options bulls betting on more upside for the oil stock, it's also likely those targeting OOTM strikes are short sellers initiating an options hedge against any more upside risk. Short interest rose 4.5% in the most recent reporting period to 192 million shares -- representing 21.8% of the equity's available float, or 7.2 times the average daily pace of trading.

Whatever the reason, the $5 level has been significant to Chesapeake Energy stock for some time. The region -- which coincides with its 25% year-to-date return -- has served as a lid for the shares since last August. Before that, it worked as support for the energy shares over the previous 12 months.

chk stock price chart may 22

 

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