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Investor expects longer-term slide, buys protection in the oil and gas name
Jud Pyle is the Chief Investment Strategist for Options News Network. After four years with SBC Warburg, he joined PEAK6 Investments as an equity options trader and chief risk officer. February 9, 2010 2:44 EST Related Symbols: CHK
Chesapeake Energy Corp. (NYSE: CHK) did not announce significant news today (the company is due to announce earnings figures on Feb. 17 after the market closes), but at least one investor is taking the opportunity to buy longer-term protection against a potential slide in the stock by buying way-out-of-the-money puts.
Around 11 a.m. EST, more than 6,000 January 2012 12.5 puts crossed the tape versus current open interest of just 376 contracts, indicating investors opened bearish positions in CHK. The implied volatility of these puts is 49, compared to a 30-day historical volatility of 43.
The buying action has pushed the price of these puts up six cents on the day to around $1.00. Investors who bought these puts will make money if CHK shares close lower than $11.50 at January 2012 options expiration.
CHK shares reached a 52-week high of $30 on Oct. 13, and the stock is currently trading at $24.59, up 35 cents on the day. Put buying such as this does not mean investors should clean out their supply of CHK shares. But at least one investor, who could be long stock, thinks CHK could experience at least 50% downside throughout the next couple years.
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