Bulls run rampant in Chesapeake

optionMONSTER

Option activity was through the roof in Chesapeake Energy yesterday as bulls continue to run rampant in the oil and gas sector.

optionMONSTER's Heat Seeker tracking program showed almost 180,000 contracts in the Oklahoma City-based company, more than 10 times its average daily volume. The action was dominated by calls, as barely 10,000 CHK puts changed hands in the session. Upside trades appeared a day earlier as well.

Yesterday's two largest trades were call spreads targeting a move to $40 in the longer term. First, traders bought 33,000 October 35 calls for $0.49 and sold a matching number of October 40s for $0.09. That strategy cost just $0.40 to open and will inflate to $5 if CHK closes at $40 or higher on expiration. (See our Education section)

A similar transaction appeared about three hours later: Some 20,000 January 35 calls were bought for $0.98, while about the same number of January 40 calls were sold for $0.31. That position cost $0.67 and will also be worth $5 if the stock is at the higher strike price when the options come due.

CHK rose 0.69 percent to $20.22 yesterday and is up 18 percent in the last month. It rallied sharply last summer and consolidated for six months before breaking out in early April. The stock has also benefited from a rally in the broader energy sector, which has recently outperformed the broader market by a wide margin, as indicated by our researchLAB analysis tool.

The company's next earnings report is scheduled for May 7.

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