did not announce significant news Tuesday 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.
Shares of CHK, which is due to announce earnings on Feb. 17 after the market closes, reached a 52-week high of $30 on Oct. 13. 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.
-- Written by Jud Pyle in Chicago
At the time of publication, Pyle did not have a position in the stock mentioned. Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."