Chesapeake Energy Corporation
) has endured a rocky June, losing more than 7.7% of its value
since the start of the month, and breaching trendline support from
its 10-day and 80-day moving averages. Trading at $20.15 as of 1:46
p.m. ET, the stock is now up just over 10% in the last 52 weeks.
CHK speculators don't foresee a recovery over the next few weeks,
either, and are extending the life of their short call positions
today, as front-month options expire.
First, 2,520 of the June 22 calls were evidently purchased to close
at the ask price of $0.01. In mid-May, a similarly sized block
opened at the bid price of $0.20. If this was in fact the same
trader, he booked a profit of $0.19 per contract (collecting an
initial premium of $0.20, then buying the position to close for
The trader then collected
premium upfront via July 22 calls, as another block of 2,520 traded
at the bid price of $0.22. Data from the International Securities
Exchange (ISE) confirms these orders were of the sell-to-open
variety. In order for the call seller to reap the maximum potential
profit on this trade (which is 100% of the credit collected), CHK
has to be trading below $22 on July 19, when the option expires.
This is a jump of 9.2% from current levels (which, as noted above,
isn't far off compared to the stock's year-over-year gains). Note
that if these are
, the trader is booking losses on his existing stock position with
every step lower in the shares.
During the last two weeks, Chesapeake Energy option players have
taken a more "vanilla" approach
to call trading. The stock's 10-day call/put volume ratio measuring
activity at ISE, Chicago Board Options Exchange (
), and NASDAQ OMX PHLX (PHLX) shows that roughly five calls have
been purchased to open for every four puts over this timeframe. The
ratio ranks in the 62nd annual percentile, indicating that demand
calls is slightly higher than average.
This article by Beth Gaston was originally published on
Schaeffer's Investment Research
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