Unusual Options Activity: Chesapeake Energy (CHK)

Oil and gas production company Chesapeake Energy (CHK) has traded flat over the past year. One trader is betting shares will trend lower in the coming weeks.

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  • That’s based on the March $72.50 puts. With 22 days until expiration, 4,594 contracts traded compared to a prior open interest of 112, for a 41-fold rise in volume on the trade. The buyer of the puts paid $0.70 to make the bearish bet.

    Chesapeake Energy shares recently traded for about $79, so shares would need to drop a bit over 8 percent for the option to move in-the-money.

    Declining energy prices over the past year have impacted profitability. Earnings are down 92 percent, and revenue is down by two-thirds.

    However, Chesapeake does sport a strong profit margin of 66 percent.

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  • Action to take: Typically, natural gas prices rise during the winter, but prices have been off this year.

    That suggests that there may be more downside ahead for shares. Interested investors should wait for signs of a turnaround before buying, which may happen later in the year as companies look to rebuild their winter inventories.

    For traders, the March $72.50 puts are inexpensive enough to see mid-double-digit returns in the coming weeks. Traders may also want to look for a longer-dated strike price to play the downtrend in natural gas prices.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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