Chesapeake Energy Options (CHK): Unusual Trading Activity

| April 30, 2012 | 0 Comments

CHK OptionsOptions in controversial Chesapeake Energy (CHK) are lighting up our screen today with a large amount of unusual trading activity.

It’s the start of a new week and another 400 companies are due to report earnings.  Needless to say, we’ll be busy updating you again this week.

We start the week with the dominant natural gas and oil producing company CHK.  Their stock has been getting beaten down lately, trading close to an all-time low of $17.85.

So, how are option traders positioning ahead of tomorrow’s earnings?

As the price of the stock moves lower, on a value basis, it gets cheaper.  Options traders know this and use it to take advantage of the depressed price.

However, it’s not unusual to see traders take a shot at a stock moving higher after a huge pullback coupled with an earnings announcement.

So, what our tracking system is picking up today is a large amount of call buying in the CHK May (weekly) $20 strike calls, the regular May $20 strike calls, and the July $21 strike calls.

Already today, across these three strike prices, over 8,000 contracts have traded hands.  On the put side, a measly 60 contracts.

These amounts represent about 1,300 call contracts for every 1 put contract.

That’s some ratio!

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 is resilient.

The company managed to survive near collapses in the late 1990s and 2008… mostly through its knack for creative money raising (specifically, joint ventures and VPPs).   And I expect Chesapeake to employ similar financing methods to help fund operations going forward.

So, with earnings tomorrow on this beaten down stock, we’ll see if history repeats itself and gives CHK a boost.  And we’ll 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.

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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.