Chesapeake Energy Options Hot as Stock Extends Slide

The July 3 call is home to peak front-month open interest

Jul 2, 2019 at 2:43 PM
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Chesapeake Energy Corporation (NYSE:CHK) stock is down 3.9% today at $1.88, sinking as oil prices sell off on global demand worries. The big price move has sparked a rush of activity in CHK's options pits, and while most of the action has occurred on the call side, it's got a notable bearish tilt.

At last check, 178,086 calls were on the tape -- 12 times what's typically seen, and volume at a new annual high. On the other side of the aisle, 48,000 puts have been exchanged so far, compared to an average daily volume of 5,662 contracts.

The November 2.50 call is most active, due to two massive blocks totaling almost 159,000 contracts that was likely sold to open earlier for $0.14 apiece, according to Trade-Alert. If this is the case, the call writer gets to keep the entire premium collected of more than $2.2 million (number of contracts * premium * 100 shares per contract) if CHK stays below $2.50 through November options expiration. Risk, meanwhile, is theoretically unlimited on a breakout above the strike price.

More broadly speaking, the July 3 call is home to peak front-month open interest of 37,432 contracts, and data suggests options buyers have been behind most of the action here. By doing so, they're betting on Chesapeake Energy swinging north of $3 by expiration at the close on Friday, July 19.

The last time CHK shares ended a week above $2.50 was May 10, and the last time it settled north of $3 on a daily and weekly basis was in April. In fact, since it's April 8 intraday peak at $3.57, Chesapeake Energy stock has lost nearly half its value. Plus, a rally attempt off its mid-June year-to-date lows at $1.75 was quickly halted by the equity's 30-day moving average.

chk daily stock price chart july 2


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