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Chesapeake Energy Corporation Bears Bet on a Repeat of History

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CHK will report second-quarter earnings before the market opens on Thursday.

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Chesapeake Energy Corporation (NYSE:CHK) is slated to take its turn in the earnings confessional before the market opens tomorrow. Given the stock's dismal post-earnings price action, option traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have shown a growing preference for puts over calls in recent weeks. Specifically, the equity's 10-day ISE/CBOE/PHLX put/call volume ratio has risen to 1.40 from its July 1 reading of 0.57. What's more, the current ratio ranks higher than 82% of similar readings taken in the past year, suggesting puts have been bought to open over calls at an accelerated clip of late.

Echoing this developing trend is CHK's Schaeffer's put/call open interest ratio (SOIR), which has moved to 1.30 from its July 22 perch at 1.17, as put open interest in the front three-months' series has jumped 14.3%. This ratio now sits in the bearishly skewed 66th percentile of its annual range, implying short-term speculators are more put-heavy than usual.

Sentiment paints a rather skeptical backdrop outside of the options pits, as well. For starters, short interest accounts for 11.8% of the equity's available float, and it would take more than nine sessions to cover these shorted shares, at CHK's average daily pace of trading. Additionally, 18 out of 25 analysts believe the stock to be a "hold" or "strong sell," and the consensus 12-month price target of $23.20 is just a stone's throw from the security's current perch at $23.05.

Historically, Chesapeake has made some big post-earnings moves, and, as alluded to earlier, they tend to be to the downside. Although the company has matched or exceeded analysts' expectations in four of the past seven quarters, the stock has shed, on average, 3.5% and 4.7% in the day and week following the report, respectively. For CHK's second quarter, Wall Street is calling for a profit of $0.41 per share -- a $0.35 improvement over its year-ago results.

This article by Karee Venema was originally published on Schaeffer's Investment Research.

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No positions in stocks mentioned.
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