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Unusual heavy activity in Chesapeake

Chris McKhann (chris.mckhann@optionmonster.com)

Chesapeake Energy is seeing large and unusual option activity today.

CHK is down 2.12 percent this afternoon to $14.34 after hitting a three-year intraday low of $14.27 earlier in the session. Shares of the struggling natural-gas company have been losing ground in the last two months from levels above $26 as the company faces controversies involving CEO Aubrey McClendon.

optionMONSTER's systems first detected the purchase of 12,500 July 13 puts for the ask price of $1.50 this morning. Seconds later, 25,000 July 9 puts were sold for the bid price of $0.55. The previous open interest at each strike was fewer than 6,000, so this was a new ratio spread .

The initial trades were broken and replaced, and during that time a block of 25,000 October 22 calls was bought for $0.80. This trade doesn't appear tied to the ratio spread at first glance, but could be. The long calls would profit with the stock above the $22 strike price at expiration in five months.

The put spread cost a net $0.40, which will be lost if CHK is above $13 at expiration. The maximum gain comes if the stock is right at $9 at expiration. Below that level the trader faces assignment and the obligation to buy shares. (See our Education section)

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