Chesapeake Energy: Highlighting Interesting Puts and Calls


Chesapeake Energy Corporation (NYSE:CHK) has been under the microscope for quite some time, first for the actions of former CEO Aubrey McClendon, and now, for an entirely different reason. reports (via The Street) that Chesapeake is one of the most popular stocks on its users’ stock options watch list. As a result, the site has highlighted a couple of interesting option contracts investors might consider.

“Particularly interesting” put contract identified

Stock Options Channel’s YieldBoost algorithm highlighted a put contract with a $23 strike price and July expiration as being “particularly interesting.” The bid for that contract was at 88 cents, and when collecting it as the premium, it suggests a 3.8% return against the commitment, or an 8.4% annualized return rate.

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Of course selling puts doesn’t provide full access to any upside potential investors might see in Chesapeake Energy Corporation (NYSE:CHK) because investors who sell puts only end up owning the shares if that contract ends up being exercised. However, Stock Options Channel notes that the 8.4% annualized return is higher than the 1.3% annualized dividend paid by Chesapeake, according to the current share price. And on the other hand, investors who just buy shares of Chesapeake outright for the purpose of collecting the dividend see more downside risk because shares would have to decline 12.85% in order to hit the strike price of $23 a share.

July call contract for Chesapeake also interesting

The website also highlights a July expiration call for current investors of Chesapeake Energy Corporation (NYSE:CHK) who want to increase their income to more than its annualized dividend yield. By selling a covered call at a $30 strike price and then collecting the premium from the 87-cent bid, investors see an extra 7.2% return rate against the current share price. Any upside over $30 a share would be lost, however, if shares do end up rising that high and they get called away under the contract. However, in order to reach that high, the stock would have to climb 13.7%.