Chesapeake Energy Options (CHK): Unusual Trading Activity

| September 13, 2012 | 0 Comments

CHK OptionsOptions in controversial Chesapeake Energy (CHK) lit up our screen yesterday with gigantic trading activity.

So far, 2012 has been a year of buy-outs, takeovers and M&A activity.  And this month is no different.  This time the target company involved happens to be CHK.

Chesapeake Energy announced yesterday a flurry of deals covering its Permian Basin, midstream, and various non-core assets, with expected cash proceeds of approximately $7 billion.

In the Permian, aside from its previously announced sale of producing Midland Basin properties to EnerVest, Chesapeake will be selling the northern and southern portions of its Delaware Basin assets to Chevron (CVX) and Shell (RDS.A) respectively.

The total proceeds from the three deals covering just over 1 million net acres and including 36 thousand barrels of oil will be approximately $3.3 billion.

Well, it’s obvious why option traders are excited… so what are they doing about it?

As the price of the stock remains steady on this news at around $20 per share, options traders are a bit more optimistic in the short-term future. 

However, it’s not unusual to see traders take a shot at a stock moving higher after major selling news as we’ve been seeing in this name.

So, what our tracking system picked up yesterday is a large amount of call buying in the CHK September $20 strike calls.  As a matter of fact, over 10 times normal volume traded just yesterday.

On this strike, just over 20,000 contracts have traded hands.  They traded in a few large blocks at an average price of only $0.30 a share.  This puts the total investment capital at $600,000, with unlimited upside potential above $20.30 a share come September expiration.

That’s some trade!

But, what else is contributing to this unusual amount of call activity?

If you don’t already know, Chesapeake Energy acquires, explores, develops, and produces natural gas and oil in the United States.

The company also offers marketing, midstream drilling, and other oilfield services while holding approximately 14.9 million acres of oil and natural gas producing properties.

Even though CHK has had its troubles lately… it just has too much going for it.

Chesapeake’s large land positions in almost every major US region should support considerable production and reserve growth for a long time to come.

In addition, Chesapeake seems to be continuously resilient.

And these joint ventures will help the company ramp up its drilling and completion activity at relatively low cost.  Of course, this will help by adding revenue directly to its top line.

Lastly, with US natural gas prices likely to remain depressed for the next few years, Chesapeake’s shift to a more liquid rich portfolio should help improve CHK’s overall economic profile.

So, with all of this M&A news coupled with their strong foundation, let’s see if CHK will get a major boost in the next few weeks and watch our option traders make some serious money.

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber


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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.