Unusual Options Activity: Chesapeake Energy (CHK)

Big bet on natural gas producer during summer slump.

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  • Shares of Chesapeake Energy (CHK) could move up to 34 percent higher between now and November.

    That’s based on a surge in volume on the November $2.50 calls, and a current price around $1.86. On Tuesday, over 160,000 of these options traded, a 58-fold surge in volume.

    That’s a relatively quick amount of time for such a move, but it’s not unheard of in the commodity space.

    Plus, by November, a colder-than-expected winter could move natural gas prices higher, which would also benefit CHK shares.

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  • Action to take: With the option trading around $0.16, or $16 per contract, it’s cheaper than buying shares. But under $2 per share, buying the stock is like buying an option that doesn’t expire. Chesapeake should start to rally later in the year as part of a seasonal trend, but it may not hit $2.50 quickly enough and the entire option position would expire worthless.

    Chesapeake can be volatile, but could easily pop to $4 or $5 from current prices on sufficient news, like cold winter weather. However, that move tends to occur later in the winter, not as early as November.

    Summer is the slow season for natural gas, so it’s the perfect time to build up a stake in the company with an eye towards booking a profit as soon as shares spike.