Options Players Pile On as CHK Heads Deeper Into Penny-Stock Territory

Despite this, calls have remained more popular than puts in the past 10 days

Deputy Editor
Nov 11, 2019 at 3:25 PM
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The already suffering shares of Chesapeake Energy Corporation (NYSE:CHK) have taken a turn for the worse during the past week, following the firm's dismal third-quarter earnings report and warning note over its ability to continue as a "going concern." The stock lost a whopping 37.5% last week, and is looking at even more downside today as it gears up for its lowest close in over 20 years, off 9.7% at $0.81 at last check. 

While this negative price action is certainly more dramatic than usual, CHK is no stranger to downside on the charts. For the year, the stock has lost over 60%, with two recent attempts to break free from these lower lows thwarted by its 100-day moving average. While CHK has found a floor atop the $0.80 region for the time being, it's also pacing toward its fifth monthly drop, should these losses hold -- the equity's longest monthly losing streak since 2017. 

CHK Nov 11

Options activity has been whipped up into a frenzy as a result, and call traders have taken control, with 166,360 calls across the tape during the past 10 days, compared to 72,880 puts. This puts Chesapeake Energy on Schaeffer's Senior Quantitative Analyst Rocky White's list of S&P Midcap 400 (MID) stocks that have attracted the highest volume within this time period, with names highlighted in yellow new to the list. 

Most Active Options Nov 11

Drilling down, a massive amount of this recent activity has centered at the November 1 call, where a chunk of contracts were likely bought to open. If this is the case, the call buyers expect CHK to bounce back above $1 by front-month options expiration at the close this Friday, Nov. 15.

The brokerage bunch, on the other hand, has been relatively quiet on CHK. There's plenty of potential for bear notes to come through, though. Eleven of the 23 in coverage call Chesapeake Energy a "hold," while three still say it's a "buy." What's more, the consensus 12-month price target of $1.71 is more than double current levels. 

This recent behavior has likely had short sellers cheering, considering that these bearish bets represent over 20% of the stock's available float, or nearly a week of trading at CHK's average clip. Unfortunately for these bears, Chesapeake Energy just landed on the short-sale restricted (SSR) list. 

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